Canadian Dollar Rebound in Store
- Written by: Gary Howes
Image © Bank of Canada
"A rebound for the CAD is in store," says Barclays in a weekly FX strategy analysis.
The call signals a looming turning point for the Canadian dollar, which has underperformed currencies in its peer group - the so-called commodity dollars - in recent months.
Expectations for outperformance rest on an assessment that Canada's economy is starting to find its feet again, although trade tensions with the U.S. remain an outstanding issue.
"Demand-side data indicators have improved considerably," says Barclays. "This is evidenced in upbeat surveys, solid retail sales and the strong GDP rebound in Q3, notwithstanding lingering data distortions from the tariff front-loading."
Last week's release of Canadian GDP sailed beyond expectations, hinting at green shoots in an economy that has been under pressure for much of the past year.
To be sure, there are economists who say the GDP figures overestimate underlying trends, but Barclays says easing global trade tensions and an expansionary Budget bode well.
Also, there's been a considerable monetary stimulus to take into account courtesy of Bank of Canada rate reductions.
This, say analysts, "ought to support Canadian growth in the coming quarters."
Although Barclays says a "rebound is in store", analysts caution that trade negotiations with the U.S. are still on hold following the Ontario ad controversy.
"And we view a more lasting trade deal (or truce, at a minimum) to be a necessary condition for a lasting CAD rebound," say strategists.
"As we perceive this outcome to be the path of least resistance and with the BoC cutting cycle largely over, we are pencilling in a modest rebound for the CAD versus the dollar and commodity peers in our new forecasts," adds the note.
