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USD/CAD could drop sub-1.08 in early 2015 – Rabobank

FXStreet (Edinburgh) - According to Jane Foley, Senior Currency Analyst at Rabobank, the pair could slip back to levels below the 1.0800 handle at the beginning of the next year.

Key Quotes

“Last week Canada’s Q2 GDP report registered a much firmer than expected 3.1% annualised expansion driven by a 17.8% annualised increase in exports”.

“In recent years it has been consumption that has been the mainstay of Canadian economic growth. However, with household debt levels having risen to worrying high levels and with the savings rate in decline, it would clearly be to the economy’s advantage if the external sector and investment spending were to take a broader share of the growth burden”.

“It is likely that the better tone of recent economic data releases will persuade Governor Poloz to refrain from extremely dovish language. However, there would appear little incentive in him moving away for the neutral outlook on rates”.

“The BoC has maintained that the recent upside pressure on inflation is temporary and the CPI inflation did drop back in July. Investment spending is still weak and there are still plenty of clouds over the world economy”.

“Also, since its March low vs. the USD the CAD has recovered some ground. We expect USD/CAD to hold close to the 1.09 area for the rest of the year”.

“We look for the first BoC rate hike of the cycle at Q3 2015, a little ahead of the Fed (we expect the first Fed hike in Q4 2015) and therefore see risk of a push below USD/CAD1.08 at the start of 2015”.

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