USD/CAD: Yet another volatile month – Lloyds Bank

Research Team at Lloyds Bank notes that the Canadian dollar has experienced yet another volatile month, once again testing both the lower and upper bounds of its medium-term range.

Key Quotes

“Having held 1.30, the currency pair rallied strongly as FOMC members prepared the market for March’s policy rate rise and oil prices fell by more than 10% in just a week. However, the rally stalled following the Federal Reserve leaving their median expectation for the path of future tightening unchanged and oil prices finding support around $50/barrel, leaving the pair in the middle of its range.”

“Recent Canadian data have been strong. The latest quarterly GDP growth measured 2.6%y/y, inflation for January rose to 2.1%y/y and the labour market continues to tighten. The Bank of Canada left interest rates unchanged at its March meeting. However, Governor Poloz maintained his downbeat tone. Nonetheless, we see Canadian rates on hold through this year.”

“Moreover, the more conciliatory tone from the Trump administration towards its trading relationship with Canada, following the President’s “wonderful” meeting with PM Trudeau, has reduced political and economic uncertainty. In light of this, and the strong domestic data, we forecast USD/CAD to fall to 1.26 by end-2017.”