- While the U.S. dollar just registered its worst quarterly performance since 2010, we haven’t lost faith in the currency, expecting it to bounce back sooner rather than later. Diverging monetary policies between the Fed and other central banks, and upcoming fiscal stimulus could boost confidence and have markets price more Fed hikes this year.
- The euro has taken off in recent weeks as markets celebrated improving Eurozone economic data and the defeat of the far-right at the Netherlands elections. But we’re still unenthusiastic about prospects for the common currency considering major uncertainties related to Brexit, upcoming elections in France and Germany, and changing U.S. trade policy. And with the European Central Bank still in easing mode, one should not rule out a euro closer to parity with the greenback come year-end.
- Unless there is a change in stance from the Bank of Canada, the loonie should remain under pressure. The persistence of soft oil prices and dovish BoC rhetoric could cause a further widening of U.S.-Canada interest rate spreads. A likely moderation in foreign portfolio inflows could weigh further on the loonie. As such, we continue to expect USD/CAD to head toward the upper end of the 1.30-1.40 range in the coming months. But that’s based on our forecast the central bank will delay interest rate hikes to early 2018. In other words, the loonie could do better if the Bank of Canada acknowledges the abundance of positive economic data and mounting financial stability risks and puts forward the possibility of an earlier rate hike.
Krishen Rangasamy/Stéfane Marion