The Canadian Dollar is anticipated to face difficulties in the short term, despite economists at ANZ Bank predicting that the USD/CAD pair will decrease later in the year. This is because if the Consumer Price Index (CPI) continues to drop towards the Bank of Canada’s (BoC) projections of 2.6% YoY by the end of the year, pausing the current monetary policy tightening cycle could result in improved economic data later in the year, resulting in tailwinds for the Canadian Dollar as the DXY declines and oil prices rise according to their forecasts.
As the BoC’s pause in its current monetary policy tightening cycle is expected to pay off later in the year with a rebound in broader economic data, this should lead to tailwinds for the Canadian Dollar as the DXY declines and oil prices rise in accordance with their forecasts. However, in the near term, the Canadian Dollar’s underperformance is expected to continue before gradually falling to 1.29 by December this year.
Despite the near-term struggles of the Canadian Dollar, the USD/CAD pair is expected to turn back lower later in the year due to improvements in broader economic data. This should result in the Canadian Dollar’s position improving with the possibility of tailwinds as the DXY declines and oil prices rise in accordance with ANZ Bank forecasts.
The BoC’s approach to their current monetary policy, which involves taking a pause on tightening, may ultimately pay off in the long run. This is because a potential rebound in broader economic data later in the year could lead to tailwinds for the Canadian Dollar, as the DXY is predicted to decline and oil prices are anticipated to rise. It is this potential for improvement that ANZ Bank economists believe will occur, despite the Canadian Dollar experiencing underperformance in the short term.
In terms of specific predictions for the future of the Canadian Dollar, ANZ Bank economists believe that it may continue to underperform in the near term. However, they predict that the USD/CAD pair will gradually fall to 1.29 by December this year. This prediction is based on their expectation that the CPI will continue to slip towards the BoC’s expectations, leading to a possible rebound in economic data.
This potential for an economic rebound is closely tied to the BoC’s decision to pause the tightening of its current monetary policy. By doing so, they are creating the possibility of improving broader economic data later in the year as the DXY declines and oil prices rise. These factors not only suggest improving conditions for the Canadian Dollar but also indicate the potential for tailwinds to support it further.
In summary, despite the current underperformance of the Canadian Dollar, ANZ Bank economists believe that the USD/CAD pair will turn back lower later in the year. The potential for this turnaround is based on the idea that the CPI will continue to drop towards the BoC’s projections, potentially leading to a rebound in broader economic data as the year progresses.
This rebound in economic data, driven by the BoC’s decision to pause the tightening of its current monetary policy, should lead to tailwinds for the Canadian Dollar in the long term as the DXY declines and oil prices rise. Although the short-term outlook for the Canadian Dollar suggests continued underperformance, the long-term forecast offered by ANZ Bank economists indicates the potential for improvement as the year goes on, with the possibility of the USD/CAD eventually reaching 1.29 by December this year.
