Currency Forecast - CAD: More Depreciation From Low Oil Prices And Rate Cut - AUG 2015

BMI View: The Canadian dollar will remain under selling pressure in the coming months, with additional monetary easing and lower oil prices weighing heavily on the unit. We see scope for only gradual appreciation in 2016, and note that even if the BoC does not cut its benchmark overnight rate this year, there is little to suggest appreciation for the currency in the foreseeable future.

Short-Term Outlook (Three-To-Six Months)

The Canadian dollar (CAD) is on course to retest March highs (weakness) of CAD1.28/USD in the coming days and weeks, from its current level of CAD1.26/USD, and will hit our short-term target of CAD1.30/USD in the coming months. Lower oil prices and the prospect of a technical recession (defined as two consecutive quarters of negative GDP growth) suggest that the depreciatory momentum seen since the start of July will remain in place. Oil prices are breaking lower, and we believe that a breakthrough agreement with Iran on its nuclear programme will send prices lower still given that any lifting of sanctions will see Iranian crude enter the market over the coming quarters ( see 'Downside To Brent From Iranian Crude Exports', March 30).

Depreciatory Trend Remains Unbroken
Exchange Rate, CAD/USD
Source: Bloomberg, BMI

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