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Forex News

Loonie to strengthen if economy improves – Danske Bank

According to analysts from Danske Bank, the USD/CAD pair will move to the downside over the next months. They forecast it will trade at 1.37 in six months (revised higher from 1.35). 

Key Quotes: 

“Given the oil heavy nature of the Canadian economy, CAD has – like other oil currencies – been heavily hit by the double whammy of both COVID-19 and the oil price war. COVID-19 figures show similarities to the US and have improved recently, but risks are for a larger economic setback than previously assumed. Bank of Canada (BoC) has reacted strongly by cutting rates by 150bp to a level that the central bank deems the lower boundary.”

“The BoC has also launched asset purchase programs in government, provincial and corporate bonds. Looking forward, the CAD’s direction will be determined by how fast both the global economy gets up and running, and by how oil prices, products and global asset markets recover. In our base case, we pencil in a stronger CAD. According to CFTC IMM data, speculative CAD positioning remains borderline stretched short.”

“We forecast USD/CAD at 1.40 in 1M (from 1.43), 1.38 (unchanged) in 3M, 1.37 in 6M (1.35) and 1.35 in 12M (1.28).”

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