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Loonie appreciation proves temporary as CAD/USD outlook remains uncertain
The Canadian dollar (CAD) opened the month trading under 0.80 USD/CAD but gradually appreciated against the U.S. Dollar (USD) to 0.82 USD/CAD by around the mid-month mark. This relative appreciation proved temporary, and was all but erased, as the currency pair settled back near 0.80 USD/CAD by month end.
The bank forecasts provide no clear guidance on the value of the currency pair so far as the end of the current calendar year is concerned, as exemplified by the wide range of forecasted values. On one end, TD forecasts 0.75 USD/CAD, whilst on the other end of the spectrum Laurentian projects the currency pair to trade at 0.83 USD/CAD by year end. Despite this short-term uncertainty, unanimity remains amongst the surveyed banks that the CAD will eventually appreciate relative to the USD over 2016.
Eurozone debacle contributes to divide in CAD/EUR bank outlook
The uncertainty of Greece’s place in the Eurozone and the possibilities of further Euro currency contagion have contributed to volatile trading of the currency pair throughout the month of June. The pair traded at the beginning of the month at 1.37 CAD/EUR, only to spike to 1.41 CAD/EUR over just four trading days. Despite trading within this range for the remainder of the month, the ongoing Eurozone debacle has created a divide in the estimated value of the currency pair over the next year and a half as published by the surveyed banks.
Notably, CIBC and RBC expect a single EUR to demand as much as 1.49 and 1.47 CAD respectively by the end of 2016. This is in stark contrast to BMO and Laurentian’s forecasts of 1.19 and 1.18 CAD/EUR for the same period.
No overnight rate hike until the latter half of 2016, federal funds rate expected to rise
In contrast to last month’s report, there no longer exists a consensus that the overnight rate will remain steady over the course of the current calendar year, with RBC and Laurentian forecasting a 25 bps cut by year end. Uncertainty is observed to the end of 2016, where the surveyed overnight rates range between 0.50% and 1.25%. On the other side of the border, the federal funds rate is expected to rise, with all of the surveyed banks forecasting several rate hikes at least until the end of 2016.
Gradual rate rises in 2 year bonds
A consensus exists that 2 year government bond yields will rise both in Canada and the U.S. over 2016. In particular on the Canadian end, the range of forecasts is notably wide with Scotiabank projecting 2.00% and Laurentian estimating 0.75% for 2 year Canadian government bond yields through calendar 2016.
10 year bond yields expected to rise gradually
RBC anticipates the steepest increase to 10 year government bond yields on both the Canadian and U.S. side by the end of calendar 2016. The remaining surveyed banks agree that these yields will rise, but are more modest in their view.
Long bond yields forecasted to rise
Much like the 2 year and 10 year government bond yields, a consensus exists amongst the surveyed banks that the 30 year government bond yields will rise in Canada and the U.S. through 2016, with Laurentian and RBC leading the pack on the Canadian and U.S. ends respectively.
All quotes are based on public information.