Analysts at CIBC, point out that the Canadian Dollar (CAD) is among the top currencies so far during the year and warn its performance could have been better if it had followed CAD-US spreads.
“The Canadian dollar has been the best-performing major currency since the start of the year, most recently due to the divergence between BoC (on hold) and Fed (cutting) policy. However, if the prior relationship between the two-year yields had held, the loonie could have been flying even higher. Instead, global growth concerns that have weighed on risk sentiment and oil prices have kept it more grounded.”
“With markets now no longer pricing in a BoC cut before year-end, in contrast to our forecast for a December reduction, there could actually be some downside risk for the loonie over the coming 3-6 months.”