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- USD/CAD to tick down towards 1.20 in 2022 as loonie has room to strengthen – NBF
USD/CAD to tick down towards 1.20 in 2022 as loonie has room to strengthen – NBF
While the loonie has strengthened slightly against the USD since the start of the fourth quarter, the appreciation has been very muted. Economists at the National Bank of Canada remain comfortable with their current forecast calling for a rate of USD/CAD 1.20 in 2022.
Stronger loonie but still too weak
“The change in expectations for Bank of Canada rates hikes combined with high prices of commodities suggest more than 12 cents of underverluation versus the US dollar.”
“While we have moved up the date of BoC’s first rate hike from July 2022 to April 2022, our assumption is weaker than what the markets are expcting for the BoC, with a significant narrowing of spreads between Canada and the US on two-year Treasury yields.”
“While the economy appears to be doing well at the present, we believe the central bank is sensitive to household debt and wants to avoid a ‘hard landing’ in the housing market. We concede that there is a high degree of uncertainty, but the apparent downside risks to the Bank’s new growth and inflation forecasts could buy its time.”
“We remain comfortable with our current forecast calling for a rate of USD/CAD 1.20 in 2022.”
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