Staying bearish on weak cyclicals

The Canadian economy continued to operate with excess supply at the beginning of the year, even as it reaccelerated from stagnation in 2H23. By doing so, this spurred renewed disinflation progress across all of the Bank of Canada’s inflation measures, leaving policymakers little option but to cut rates in June. With underlying cyclical momentum weak and the Bank of Canada providing little resistance to a further widening in US-Canada rate differentials, we think the BoC has just taken the first of multiple easing steps this year, which once realised by markets should support further CAD depreciation in the coming months. While this leaves us tactically bearish on the loonie, we have revised down our forecasts for USDCAD over the next 3-months, reflecting the slightly more accommodative external backdrop. 

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Author: 

Simon Harvey, Head of FX Analysis

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