USD/CAD: Divergence and trade risks keep pair elevated – MUFG
MUFG notes that USD/CAD has moved back above 1.4000 as markets price a more dovish Fed than Bank of Canada and as short CAD positions remain popular. While Canada benefits from stronger terms of trade, MUFG expects BoC to keep a balanced stance given US trade policy uncertainty, which is likely to remain a headwind for the CAD through the rest of the year.
BoC caution and trade headwinds
"In contrast, market participants remain more confident that the Bank of Canada will keep rates on hold this year than they are about the Fed."
"Trade policy uncertainty is likely to remain a headwind for the CAD through the remainder of this year."
"In light of these developments, we expect the BoC to signal that it remains open both to raising rates in response to upside inflation risks and to lowering rates should US trade restrictions and related uncertainty weaken growth sufficiently."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
