Societe Generale Research discusses USD/CAD outlook.

 

"Over the last decade, USD/CAD has traded within a 1.20-1.45 range, averaging 1.33. If IMF growth forecasts are largely assumed to be priced into the current exchange rate, then the upside from here appears limited. That is certainly the impression given by the series of recent spikes, each followed by a relatively swift retracement. A significant decline in USD/CAD, however, will likely require a meaningful narrowing of the growth gap and, by extension, a substantial reduction in the interest rate differential," SocGen notes.

 

"Between 2000 and 2015, Canadian GDP grew faster than the US, but the US has consistently outperformed since then. The difference is largely attributable to the concentration of high-growth technology companies in Silicon Valley rather than in Canada or Europe. The average USD/CAD exchange rate was 1.21 between 2000 and 2015, compared with 1.33 over the past decade. It is therefore reasonable to expect USD/CAD to remain within the 1.20-1.45 range over the next decade and to average modestly above 1.30, unless another major shock occurs. In the near term, the most reasonable conclusion may be that a great deal of bad news is already priced in. However, pushing USD/CAD below 1.35, for example, will likely require a catalyst in the form of improved geopolitical conditions or stronger Canadian economic data," SocGen adds.