USD/CAD likely to hold support at 1.24 for some time, says Commerzbank

The USD/CAD currency pair is expected to hold on to its support at 1.24 level for quite some time now, given the fact that Canada is showing good signs of growth. Moreover the CAD has appreciated by almost 10 percent against the USD since May, this year. A further rate hike, which is not priced in by the market, would likely strengthen the domestic currency’s appreciation and might dampen the inflation outlook again.

In July the Bank of Canada (BoC) had already raised its 2017 economic growth forecast to an impressive 2.8 percent and that for 2018 to 2.0 percent. A surprisingly upside GDP data today may raise its forecast for 2017 again next week.

Based on the strong growth that is increasingly broadening to more economic sectors the BoC raised its key rate by 25 basis points to 0.75 percent in July despite the fact that it lowered its inflation forecasts at the same time. It stressed at the time that it was mainly temporary factors keeping inflation at low levels and that by mid-2018 inflation would rise to its target of 2 percent.

"Markets remain skeptical whether the BoC will continue its rate hike cycle very quickly, as early as next week due to the strong economic momentum. However, the underlying inflation trend remains too weak to justify a further rate hike as early as September, thereby, reinforcing that the monetary policy will remain unchanged for now. That means the support in USD/CAD at 1.24 is likely to hold for now," Commerzbank commented in its latest research report.

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