“CAD has weakened modestly against the greenback in recent weeks, reflecting the dip in oil prices from highs above $50 last month. However, the depreciation would have been worse if interest rate spreads had tracked comparative movements in the surprise indexes for Canada and the US, and added a further headwind to the C$.
Short-term interest rates in Canada have moved up since the BoC deepened its concerns over financial vulnerabilities, in the process nearly ruling out another rate cut this year.
However, with the Fed likely to move closer to a December rate hike, rate spreads should move in favour of the US, with USDCAD grinding steadily higher towards our year-end target of 1.35″.
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