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The CAD still trades a little "rich" in comparison to our basic fair value estimate, but we observe that the modelled outcome has significantly improved over the past week, and there is a growing association between the CAD and US stocks.
The Canadian currency is not expected to do well given the impending economic headwinds, global recession fears, slowdown in the local sector (real estate), inflationary pressures, unsustainable debt payment costs, commodity price declines and risk aversion.
While an omicron-stalled recovery prevents a Bank of Canada action in January, assuming a spring reprieve from Covid, expect for April to kick off an already well-forecast tightening cycle. Omicron is expected to witness a drop in services employment and a weak first-quarter GDP figure, although demand will likely rebound once this wave passes. Put together, the loonie should gather steam in 2022.