USD/CAD likely to trade lower towards 1.34 by end-2016 and 1.31 by end-2017, says Lloyds Bank

The USD/CAD currency pair continues to trade in a rising channel, which has been in place since early-June, noted Lloyds Bank in a research report. In October, the USD/CAD pair had reached as low as 1.30, but since then the pair has gained solid upward momentum, rallying more than 1.35. Increased projections that the U.S. Fed might hike interest rates by 25 basis points during its meeting in December, despite the uncertain related to the unexpected U.S. election result, have been positive for the U.S. dollar.

On the contrary, U.S. president-elect Donald Trump’s agenda, in particular the potential for protectionist policies, is of concern to the Canadian economy, given the importance of the U.S. as a trade partner, said Lloyds Bank. Moreover, the currency pair has been buoyed by the fall in oil prices, which currently is at around 13 percent below their October highs.

The upcoming OPEC meeting on 30 November, in this backdrop, is of even higher significance given the current impasse for importance oil producers with regard to individual quotas. In the meantime, Canada’s data has come out mixed. The GDP growth data and inflation data was consistent with expectations, but retail sales and the change in full-time employment came in negative. The Bank of Canada, during its October policy meeting kept the interest rates on hold; however, it adopted an easing bias. There is an additional risk of the Canadian dollar weakening against this backdrop.

“We feel the latest rally is corrective and forecast USD/CAD to edge lower towards 1.34 by year-end and 1.31 by end-2017”, added Lloyds Bank.

At 10:00 GMT, the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at 22.096, while the FxWirePro's Hourly Strength Index of USD was neutral at 35.52. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex