Forex Flash: What's next for CAD? - Nomura

Nomura Strategist Charles St-Arnaud notes that he has had a bearish view on CAD since mid December due to the negative terms-of-trade shock resulting from the oil price differential between WCS and Brent.

Since then, he sees that USD/CAD has increased by about 4% and he believes that the move higher is supported by weak Canadian commodity prices, a reduction in financial flows into Canada and weak growth and inflation performance, leading to a reduction in rate expectations. He thinks that USD/CAD could reach 1.05 next month, but commodity prices and the economic outlook would have to weaken more to move higher than that.

He writes, “We have held a bearish view on the Canadian dollar since mid-December because structural issues affecting the North American oil market are causing as negative terms-of-trade shock to the Canadian economy. Since releasing this report, USD/CAD has jumped from 0.982 in early January to a current level of 1.024, an increase of more than 4%.”