The Canadian dollar suffered with oil prices but didn’t really recover when they recovered. What’s next?
Here is the view from Nomura:
Here is their view, courtesy of eFXnews:
“The Canadian dollar has depreciated significantly in recent weeks. Most of the depreciation can be linked to the further decline in oil prices and, to a lesser extent, to an increased probability of a rate cut by the BoC.Using our valuation model for USD/CAD, we estimate that USD/CAD should be closer to 1.35, given current commodity prices and rates differential.
We also look at the impact of various scenarios on USD/CAD fair value and find that commodity prices would need to decline by another 20% for USD/CAD fair value to increase above 1.40.
This suggests that, unless commodity prices continue to decline, further increases in USD/CAD are likely to be limited at this point, unless the Canadian economy falters. The Canadian dollar has depreciated sharply in recent weeks, losing more than 4% against USD, as oil prices continue to decline leading to a deterioration in the terms of trade. Moreover, a string of weaker data and the lower commodity prices have increased the market pricing of the probability of a rate cut by the Bank of Canada.”
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