USD/CAD eyes 1.25 in 12-month – Danske Bank

Analyst at Danske Bank Kristoffer Lomholt sees CAD gaining further traction towards the 1.25 area vs. its American peer within a year’s view.

Key Quotes

“As widely expected, the Bank of Canada kept the policy rate unchanged at 0.5% at the September meeting. Surprisingly, the BoC twisted its language on the balance of risk for inflation from ‘roughly balanced’ (in July) to ‘tilted somewhat to the downside’.

“Markets currently assign a roughly 20% probability of an additional 25bp rate cut in 12M. We maintain the call that the Bank of Canada will leave rates unchanged over the coming year”.

“We expect the fundamentally undervalued ‘loonie’ to appreciate gradually over the coming year on the back of valuation, a gradually higher oil price and markets repricing Bank of Canada monetary policy”.

“We lift our USD/CAD forecasts to 1.32 in 1M (from 1.30), 1.30 in 3M (1.29), 1.28 in 6M (1.27) but leave our 12M forecast of 1.25 unchanged”.