The best performing G10 currency so far this year has been the Canadian dollar which has strengthened by around 2.0% against the US dollar. Economists at MUFG Bank maintain a bullish outlook for the CAD due to high oil prices and building speculation that the Bank of Canada (BoC) will soon start to raise rates.
Loonie should continue to shine at start of the New Year
“USD/CAD is currently attempting to break back below support from the 200-day moving average at the 1.2500-level. It would open the door for a retest of the lows from last October at 1.2288.”
“While we do expect the BoC to raise rates on multiple occasions this year, the rate market already appears aggressively priced. We are not as convinced as market participants that the BoC will begin raising rates as soon as this month, although the wait for the first hike is unlikely to be long.”
“Our short-term regression model based on yield spreads and the price of oil is signalling that that USD/CAD should be trading closer to the 1.2000-level. It strongly suggests that even after recent strong gains there is clear room for the Canadian dollar’s upward momentum to extend further at the start of this year.”
