USD/CAD likely to trade around 1.45 in short term

As a result of tumbling crude oil prices, CAD is ending 2015 the same wat as it started the year. Currently USD/CAD is trading at 11 year high as crude oil prices trade below $35 per barrel after the OPEC's December meeting.

Canadian economy should face headwinds from this as 2016 begins, with the GDP growth hampered by additional cuts to energy capital expenditures which in turn detract from business investment.

"Our energy analysts have also cut their WTI/Brent forecasts (WTI cut to $52/B for 2016 and $62/B for 2017 from $57 and $65 respectively). We arerevising our USD/CAD profile higher in the short-term (1.45 for end-Q1) with the risk that we trade higher intra-quarter or CAD recovers sooner if oil manages to stage a rally", says RBC Capital Markets in a research note.

The weak commodity prices will continue to present a challenge to the Canadian growth outlook and weigh on CAD in Q1 2016. Interest rate dynamics will also be at play into next year. A series of quarterly 25bps hikes are likely from the Fed in 2016.