Analysts at MUFG Bank, consider the Canadian dollar will likely continue to remain well supported. They point out speeches from Bank of Canada officials will set the scene for what is to come.
“Crude oil prices are down close to 10% from the closing high earlier this month but it really isn’t having much knock-on effect in the G10 FX space with the Canadian dollar the top performer this month to date followed by the Norwegian krone. These two currencies are the only currencies to outperform the US dollar. While oil performance over time is important we shouldn’t necessarily be surprised with this.”
“While a rate hike is still some distance off, the lead in tapering will inevitably ensure a lead on rate hikes priced into the curve also. This could have implications for financial market conditions that the BoC will need to monitor closely. While USD/CAD is only marginally lower, the overall USD gain means CAD on a TWI basis, excluding USD, is already 4% higher and at the highest level since 2013.”
“Our taper view is similar to consensus and if USD sentiment turns less favourable later this year as we expect, USD/CAD could decline more notably than expected.”