USD to CAD Rate Forecast Higher Into 2017 by CIBC Despite 7% Slump Year-to-Date

“We continue to look for a higher USD CAD into the close of the year, albeit  have moderated our year-end target back to 1.35.” - Jeremy Stretch at CIBC Markets. 

The USD/CAD exchange rate trades with a soft tone on Tuesday the 5th with a decline in oil prices and overall risk sentiment seeing the pair fall back to 1.2867.

Brent and WTI are both lower by in excess of 2% at the time of writing - when faced with such declines in Canada's key export it is not hard to understand why the currency is underperforming.

Reports attribute "concerns over the global economy," as being behind the latest slump in crude,

CIBC Markets have written to clients saying they expect the CAD to depreciate against the USD as the domestic economy disappoints and the Fed hikes rates, albeit gradually.

Analyst Jeremy Stretch has made the call despite such the latest positioning snapshot reveals investors extending net CAD holdings for the first time in four weeks.

We are also seeing the USD-CAD slipping lower towards the 50-day MAV, (1.2890) despite the economic surprise index continuing to trend lower.

“We would expect that downtrend to persist in upcoming sessions, especially should the unemployment rate close the week back above the 7% threshold.

A trigger to a lower US dollar to Canadian dollar exchange rate would be evidence of lacklustre capital spending persisting, and a worse-than-forecast outcome from the labour market data due on Friday.

CAD has proven to be the third best performing major versus the USD this year (gaining around 7.2%) but the move is now said to be overdone and ripe to correct.

“We continue to look for a higher USD/CAD into the close of the year, albeit  have moderated our year-end target back to 1.35,” says Stretch.

Heavy Data Week Ahead for USD and CAD Ahead

For the Canadian dollar, all eyes fall on the Labour Force Survey for June, due out on Friday.

Employment growth in the country looks robust with the past three months seeing the addition of 17K jobs on average.

“As a breather is often in store after such strong gains, we expect the job market to have retreated by 6K on the month. In turn, the unemployment rate would have edged up, all the more so that the labour force probably bounced back after an outsized decline the previous month,” says a note from NBF Economics.

We will also get an inkling of the situation in the real estate sector with publication of the numbers on building permits.

Moreover, the merchandise trade deficit might have improved slightly to $2.4 billion in May from $2.9 billion in April owing to higher energy prices.

In the United States, the highlight of the week will be the Employment Situation Report, also due on Friday.

For April and May, net job creation as communicated by the non-farm payroll report totalled 161K, the lowest two-month tally since 2011.

“This does not mean that a sharp rebound is imminent. Indeed, we expect only 110K net new jobs to have been created, which includes the Verizon employees returning to work following the end of their strike. To our eyes, the current environment marked by disappointing earnings is not conducive to more intensive hiring,” say NBF Economics.

Further, new light might be cast on monetary policy when the FOMC Minutes are made public on Wednesday.