| FX Monthly | ||||||||
| Currency Pair | Trend | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 |
| USD/CAD | ⇗ | 1.27 | 1.24 | 1.27 | 1.3 | 1.32 | 1.33 | 1.34 |
| EUR/USD | ⇗ | 1.20 | 1.24 | 1.26 | 1.27 | 1.27 | 1.26 | 1.25 |
| GBP/USD | ⇗ | 1.39 | 1.43 | 1.46 | 1.48 | 1.47 | 1.46 | 1.45 |
| USD/JPY | ⇘ | 107 | 102 | 100 | 99 | 99 | 100 | 101 |
| USD/CNY | ⇘ | 6.46 | 6.32 | 6.25 | 6.2 | 6.15 | 6.10 | 6.00 |
| USD/MXN | ⇒ | 20.8 | 20 | 19.8 | 19.6 | 19.7 | 20.00 | 20.05 |
| Other Crosses | ||||||||
| EUR/CAD | ⇗ | 1.53 | 1.55 | 1.6 | 1.65 | 1.66 | 1.66 | 1.65 |
| GBP/CAD | ⇗ | 1.77 | 1.79 | 1.85 | 1.90 | 1.89 | 1.85 | 1.82 |
| CAD/JPY | ⇘ | 84.1 | 82.3 | 78.7 | 76.2 | 75.00 | 74.4 | 74.6 |
The greenback has been the lagger across FX to begin the year. The sleepy greenback story is likely to continue in the short term given the recent rally in Treasury yields and the current pace of the Fed’s QE buying which remains quite considerable. What could reawaken the USD bears is the influx of liquidity that’s expected to come as Congress passes the upcoming relief bill. From prior experience, we know that this can materially dent the USD against other currencies. While incoming data should be supportive, we expect the Fed to look past this in the near-term and for the USD to continue to trade to the downside in the near term before beginning to outperform over the next year.
The loonie continues to soar to heights not seen since 2018. Multiple factors have accounted for this appreciation including the greenback’s reversing trend and the bolstering of the price of oil over the last month. Given the correlation of the CAD vis-à-vis Oil, most expect the loonie to appreciate over the coming months likely hovering around 1.24 toward the middle of the year. That said, the appreciation in the loonie may be too rich for the economy’s blood as the short-term outlook has clouded the longer-term fundamentals of including a massive trade deficit. Having seen a larger contraction in 2020, Canada continues to have a tighter set of public health constraints in Q1, and a lag in vaccinations will widen the economic gap to the US in the first half of this year.
The ECB remains significantly concerned about the economic drag of a possible euro appreciation with talk of additional easing in the deposit rate now coming back on the table. With eurozone vaccinations set to pick up into Q2, most analysts expect the macro economy to pick up steam with a Q2 rebound fueled by an easing in lockdown restrictions and stronger data prints. Our analysts are cautiously optimistic of a stronger euro toward the latter part of the year.
The combination of an upbeat economic data, an accelerated vaccine rollout, and the avoidance of l Brexit has set the table for the GBP to rapidly appreciate. Although the UK economy is set to suffer a material contraction in Q1 due to the impact of a third national lockdown, the BoE still assumes that the economy will end the year in line with previous estimates. Consequently, the BoE anticipates quarterly growth averaging in excess of 3% for the rest of 2021, despite job shedding as the furlough scheme winds down. The prospect of higher inflation and accelerating growth supports a stronger performance in trade weighted Sterling over the coming months.
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