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Canadian dollar edges higher vs USD; ING expects stable March for USDCAD pair

Published 2024-03-01, 06:10 p/m
Updated 2024-03-01, 06:10 p/m
© Reuters. – The Canadian dollar moved higher against its U.S. counterpart on Friday, buoyed by an uptick in risk sentiment in equities, and following economic data that kept alive bets of a rate cut from the Fed in the first half of 2024.

U.S. data showed that consumer sentiment unexpectedly slipped in February, while manufacturing activity contracted further. The data adds to optimism fuelled by yesterday’s favourable PCE reading, which is the Fed’s preferred measure of inflation.

The Canadian dollar also gained strength from crude prices, as markets await an OPEC+ decision on whether supply cuts will be extended.

Analysts at Scotiabank (TSX:BNS) note that “Commodities might be one factor that could show more immediate support for the CAD—even though WTI and terms of trade correlations are weak now.”

However, they note that “negative spreads and changeable risk appetite seem likely to keep [the loonie] subdued” in the medium term.

Looking ahead, Scotiabank analysts expect “some narrowing in yield spreads once the Bank of Canada and the Fed start their respective easing cycles.”

Looking ahead for the pair into next week, all eyes will be on the Bank of Canada, due on March 6.

ING analysts that the BoC’s policy announcement - at which a hold is expected - is likely to do little to move the needle on the loonie.

ING analysts note that while “There is a risk that the message turns a bit more dovish (opening more explicitly to rate cuts) and hits CAD, but that should not change the picture dramatically for the Loonie considering how much BoC expectations are tied to Fed pricing.”

They note that while markets are underpricing rate cuts from both the Canadian and U.S. central bank, “March may be too early for a big dovish repricing.”

“Expect a stable USD/CAD in March before a USD-led decline in the pair materialises from the second quarter.”

Latest comments

I don't care what any analyst says. USD/CAD is going to at least 1.40 again, probably higher.
1.60 sorry eh.
As long as the Liberals keep destroying the country you may be right!
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