September 2018

Forex (September 7th, 2018) – Deal or No Deal?

Highlights :

“Our forecast for the Canadian dollar to appreciate versus USD after the third quarter assumes Ottawa and Washington agree to a new trade deal. Until new information is available from ongoing negotiations that challenges that assumption, we will be keeping unchanged our target range of 1.25-1.35 for USDCAD for the next 12 months.”

“The U.S. dollar is set to remain strong over the near term, buoyed by safe haven flows stemming from emerging market woes and tighter monetary policy by the Federal Reserve amidst solid American economic data. It’s unclear, however, if the USD can maintain momentum over the longer term especially when investor attention eventually turns to the bloating U.S. budget deficit and fading impacts of the fiscal stimulus. Of course, trade tensions will also need to abate.”

“While the euro is likely to remain under pressure in the near term amidst the relative strength of the U.S. economy and ongoing internal strife (e.g. Brexit, Italian politics), it has potential to bounce back sharply over the coming year. True, the European Central Bank has pledged to keep “significant monetary policy stimulus” for a while longer. But comes a point when investors will start to expect the start of ECB policy normalization and/or the end of Fed tightening, which would effectively narrow the U.S. yield advantage.”

** This extract from Forex, Economics and Strategy, National Bank, Financial Market, September 2018.

Krishen Rangasamy

Senior Economist

Krishen Rangasamy

Senior Economist

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Economics and Strategy


On track for an October rate hike but trade tensions remain a key risk

« The Bank of Canada made it clear that it is still on track to raise interest rates again this year. The Canadian economy is indeed evolving in line with its projections, with the desired rotation of demand towards investment and exports, and a stabilization of the housing market after a difficult start to the year. The central bank, however, mentioned key risks, including trade tensions (in particular NAFTA negotiations) and financial stresses in emerging markets. Assuming those downside risks do not intensify over the coming weeks, we believe the BoC will raise interest rates at its October meeting, consistent with its gradual approach to policy normalization. » 

** This extract from BoC Policy Monitor, Economics and Strategy, National Bank, Financial Market, September 5, 2018.

Krishen Rangasamy

Senior Economist

Paul-André Pinsonnault

Senior Fixed Income Economist

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