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Canadian Dollar Forecast, January 2021

USD/CAD Forecast
Bank Trend Last Month (acutal) Jan. 2021 (forecast) Q1 2021 (forecast) Q2 2021 (forecast) Q3 2021 (forecast)
CIBC 1.27 1.27 1.30 1.32 1.34
TD 1.27 1.28 1.29 1.28 1.29
BNS 1.27 1.28 1.30 1.30 1.28
RBC 1.27 1.28 1.28 1.29 1.30
BMO 1.27 1.27 1.26 1.25 1.25
Average 1.27 1.28 1.29 1.29 1.29

Summary

Despite broadening lockdowns, the recovery trade in FX markets is in full swing and the dollar bear trend is showing no signs of slowing. Trying to time a correction is tricky and instead, we are focusing on lowering our end-year dollar forecasts. Of the many factors supporting this position will be the Fed’s policy to keep rates on the floor such that US real interest rates stay very negative.  The CAD is expected to stay firm given the CAD’s relatively attractive rate profile and recovery in oil prices. Combined, this should keep the CAD in the 1.25 – 1.30 range over the medium term.

EUR/CAD Forecast
Bank Trend Last Month (acutal) Jan. 2021 (forecast) Q1 2021 (forecast) Q2 2021 (forecast) Q3 2021 (forecast)
CIBC 1.56 1.55 1.56 1.57 1.59
TD 1.56 1.56 1.55 1.56 1.58
BNS 1.56 1.55 1.56 1.57 1.58
RBC 1.56 1.55 1.51 1.48 1.48
BMO 1.56 1.54 1.54 1.53 1.53
Average 1.56 1.55 1.54 1.54 1.55

Summary

Battling deflation and faced with the huge task of returning economies to pre-Covid-19 levels, eurozone policymakers are certainly less tolerant of euro strength. Yet our conviction call of an exodus from precautionary USD holdings and into emerging markets in 2021 suggests the weak dollar trend will dominate and that the ECB will have to wage war against a stronger EUR.

GBP/CAD Forecast
Bank Trend Last Month (acutal) Jan. 2021 (forecast) Q1 2021 (forecast) Q2 2021 (forecast) Q3 2021 (forecast)
CIBC 1.74 1.72 1.73 1.74 1.76
TD 1.74 1.72 1.72 1.73 1.75
BNS 1.74 1.73 1.69 1.70 1.73
RBC 1.74 1.71 1.63 1.61 1.58
BMO 1.74 1.72 1.70 1.71 1.72
Average 1.74 1.72 1.69 1.70 1.71

Summary

The ‘skinny’ EU:UK trade deal will provide some modest support to the GBP. While we expect strict lockdowns to trigger a 3% fall in UK GDP in the first quarter, the more optimistic outlook for vaccinations means a sustained recovery could start in the spring. The longer-term recovery will depend on how quickly government wage support is removed, but also on the drag from lower investment and hiring as a result of new UK-EU trade ties.

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