USD/CAD Will Probably Climb to 1.37 say TD Securities

TD Securities are forecasting USD/CAD to rise to 1.37 as worsening Canadian fundamentals weigh on the CAD.

With fundamentals looking increasingly problematic for the Canadian Dollar, especially versus the US Dollar, TD are forecasting more upside for USD/CAD, currently trading at 1.3518.

Strategists advocate, “buying on the dips.”

Diverging central bank policies, with the Fed looking to increasingly tighten and the Bank of Canada to stay on hold will help boost the USD side of the pair.

“We expect the backdrop for CAD to remain increasingly negative into 2017 given the scope for policy divergence between the Fed and the BoC and the potential for protectionism to shift on to the Trump administration's agenda,” say TD.

TD’s ‘high frequency model’ is pointing to an upside target at 1.37, whilst the FEER model is pointing to 1.40.

The FEER model measures the currency’s ideal exchange rate as a “function of internal and external deficits and the elasticity of the exchange rate,” say TD.

“In other words, given wide current account deficit and excess slack, Canada requires a weaker exchange rate to rebalance the economy.

“The flattening of the curve between exports and CAD amplify the need for a weaker currency.

“We also note that any trade rifts with the US will hasten this negative feedback loop,” they say.