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How Will The Loonie Weather The Fed?

ByThe National Bank of Canada
Published 09/12/2013, 02:56 AM
Updated 05/14/2017, 06:45 AM

The Fed has signalled repeatedly that it remains on course to reduce the size of its asset purchase program before year-end. The September FOMC meeting, which will coincide with new US economic projections being released, may be the time and place for the Fed to finally provide details about its plan to exit QE. The US dollar stands to gain from an end to such debasement policies.

The euro won’t be spared by the dollar’s ascent. While the zone’s GDP is now expanding, that’s not to say recessionary conditions are over. Anaemic growth and record jobless rates will keep the European Central Bank in easing mode, something that should keep the common currency under wraps, although near term spikes can’t be ruled out, e.g. in the aftermath of a likely Merkel victory at the German elections. We are maintaining our 1.26 end-of-year target for EURUSD.

Like most majors, the Canadian dollar struggled in August in the face of US dollar strength. That extends the loonie’s miserable record so far this year. While the loonie could soften towards our 1.06 USDCAD end-of-year target due to a less accommodative Fed and a slightly more dovish Bank of Canada, we continue to expect it to eventually come back towards parity with the greenback next year helped in part by favourable FDI and portfolio flows.
NBF Currency Outlook
To Read the Entire Report Please Click on the pdf File Below.

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