As spring approaches and global central bankers gear up for potential interest rate cuts amidst easing inflation and slowing economic activity, the financial world is keenly watching the Federal Reserve (the Fed) and the Bank of Canada. Both institutions are currently in a wait-and-see mode, carefully analyzing economic indicators, inflation trends, and global economic conditions before making their move. The question on everyone's mind is: Who will blink first—the Bank of Canada or the US Fed?
Should the Bank of Canada decide to cut interest rates ahead of the US Federal Reserve, the Canadian dollar could weaken significantly, potentially dropping to the 1.38-1.40 range against the US dollar, which would benefit from more attractive interest rate differentials. Conversely, if the US Federal Reserve were to initiate rate cuts before the Bank of Canada, the Canadian dollar could swiftly appreciate, targeting the 1.28-1.30 range against the US dollar. This scenario might stimulate increased optimism in stock markets, commodities, and foreign exchange markets, as investors' "animal spirits" are awakened by the shifting monetary policy. The US dollar and US treasuries could fall broadly.
Bank | Trend | Mar 11, 2024 (Spot) | Q1 2024 (forecast) | Q2 2024 (forecast) | Q3 2024 (forecast) | Q4 2024 (forecast) |
BMO | ⇗ | 1.35 | 1.35 | 1.34 | 1.33 | 1.32 |
CIBC | ⇒ | 1.35 | 1.36 | 1.38 | 1.35 | 1.35 |
Desjardins | ⇗ | 1.35 | 1.35 | 1.35 | 1.33 | 1.32 |
NBC | ⇘ | 1.35 | 1.38 | 1.41 | 1.43 | 1.45 |
TD | ⇒ | 1.35 | 1.36 | 1.38 | 1.37 | 1.36 |
Average | ⇒ | 1.35 | 1.36 | 1.37 | 1.37 | 1.36 |
Economic growth in the Euro region has been flat since the end of 2022, without much sign of improvement, but unemployment remains surprisingly low. This situation seems to encourage the European Central Bank to hold off on making money more accessible until inflation decreases closer to their goal. With the European Parliament elections approaching in June, focusing on issues like immigration and farm prices, this political event is becoming a priority. The euro's value dropped from about EUR/CAD 1.51 to around 1.45 since late last year, but there's a hint it might start to recover, possibly reaching EUR/CAD 1.49-1.50.
Bank | Trend | Mar 11, 2024 (Spot) | Q1 2024 (forecast) | Q2 2024 (forecast) | Q3 2024 (forecast) | Q4 2024 (forecast) |
BMO | ⇒ | 1.47 | 1.46 | 1.46 | 1.45 | 1.45 |
CIBC | ⇘ | 1.47 | 1.46 | 1.48 | 1.51 | 1.50 |
Desjardins | ⇒ | 1.47 | 1.46 | 1.46 | 1.47 | 1.46 |
NBC | ⇒ | 1.47 | 1.45 | 1.45 | 1.46 | 1.46 |
TD | ⇘ | 1.47 | 1.46 | 1.45 | 1.47 | 1.49 |
Average | ⇒ | 1.47 | 1.46 | 1.46 | 1.47 | 1.47 |
So far this year, the GBP has maintained its upward momentum, buoyed by market sentiment that the UK will be the last major economy to lower interest rates. The Bank of England's (BoE) relatively slower pace towards reducing rates, compared to its counterparts, eliminates a key motive for selling the GBP. While the GBP may continue to enjoy the advantages of decent carry in the near term, its sustained strength could potentially drive the GBP/CAD exchange rate to test the 1.73-1.75 range, reflecting continued confidence in the GBP's performance.
Bank | Trend | Mar 11, 2024 (Spot) | Q1 2024 (forecast) | Q2 2024 (forecast) | Q3 2024 (forecast) | Q4 2024 (forecast) |
BMO | ⇗ | 1.73 | 1.71 | 1.70 | 1.70 | 1.69 |
CIBC | ⇘ | 1.73 | 1.71 | 1.73 | 1.74 | 1.73 |
Desjardins | ⇒ | 1.73 | 1.70 | 1.72 | 1.72 | 1.71 |
NBC | ⇒ | 1.73 | 1.70 | 1.72 | 1.72 | 1.71 |
TD | ⇘ | 1.73 | 1.70 | 1.69 | 1.71 | 1.74 |
Average | ⇒ | 1.73 | 1.71 | 1.71 | 1.72 | 1.72 |
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