USD/CAD: Could Make Another Brief Foray Below 1.25 But Unlikely Sustainable

The Canadian dollar had a huge run, made a significant correction and now seems to lift its head once again. What’s next? Here is the view from CIBC:

Here is their view, courtesy of eFXnews:

CIBC FX Strategy Research argues that while USD/CAD could see another brief foray below 1.25, it’s unlikely to see a sustainable break below that level.

“It’s not that we see a major bout of Canadian dollar weakness. It will garner some support from marginally higher oil prices and further rate hikes in the next two years. But with oil’s swings generally contained its interest rate differentials that these days are calling the tune for the C$.

On that score, we’re skeptical of the C$ bulls’ view that the Bank of Canada is prepared to outgun the Fed.

While neither country has a pressing inflation problem, there are other Made-in-Canada reasons for the Bank of Canada’s tightening strategy to be very measured. Canadian household debt is larger relative to income and it isn’t locked into a 30-year fixed rate mortgage. A tightening in mortgage and other housing-related regulations is doing some of the work in cooling that sector,” CIBC argues.