USD/CAD: Loonie's recovery to take longer – MUFG

The Canadian dollar spent most of September trading above the 1.2600 level versus the US dollar, the weakest calendar-month period since February. Global growth concerns preventing a stronger CAD. Therefore, economists at MUFG Bank expect the loonie to strengthen later next year.

BoC to be more confident to hike rates next year

“We have revised weaker our CAD projections (by around 3%) versus last month’s levels reflecting the expected move higher in US short-term yields coupled with a higher level of global growth uncertainty that may now persist into Q1 2022.”

“We have not really made much change to our assumptions specific to Canada although the level of growth of late has been weaker than what the BoC assumed. The Q3 annualised QoQ GDP assumption from the BoC was 7.3% (in July) with the market consensus now at 4.0%. Will this make much difference to the BoC’s plans on monetary policy? We don’t think so.” 

“Assuming the supply-constraint related global growth uncertainties subside, we expect CAD to advance more notably later next year when the BoC will be in a position to raise rates for the first time.”