US Dollar / Canadian Dollar Interest Rate Trading Bias: Bearish
urrency, Central Bank | US Dollar, US Federal Reserve | Canadian Dollar, Bank of Canada | Net USDCAD Spread | Signal |
| 1-Year Expectations(Basis Points) | 16 | 58 | (42) | Bearish |
| Yield in 1 Year(Percent) | 0.41 | 1.58 | (1.17) | Bearish |
An important bounce in Bank of Canada interest rate forecasts has led to a similar move in the Canadian Dollar itself. Twelve month interest rate hike expectations for the Bank of Canada nearly doubled on a surprise jump in Canadian Consumer Price Index inflation data, warning that the central bank may need to move soon to counteract inflationary risks.
All else remaining equal, improved CAD rate prospects could keep the USDCAD lower. Yet the pair’s correlation to crude oil prices continues to trade near record-highs, and the Canadian Dollar’s trajectory may very much depend on moves in energy prices.
Watch future Bank of Canada interest rate decisions, CPI data, and the price of Crude Oil to guide Canadian Dollar price action through the foreseeable future.
US Dollar / Canadian Dollar Valuation Forecast
USDCAD Valuation Bias: Bullish
The disparity between USDCAD spot and PPP-implied exchange rates remains significant at 20.3 percent. Of all the majors, the so-called Loonie is the most sensitive to the implications of June’s QE2 expiration: first, its intimate correlation to the S&P 500 means that the response of market-wide risk sentiment to the likely rise in US borrowing costs will be mirrored in the USDCAD exchange rate; second, Canadian economic growth (and thereby its scope for interest rate hikes) is closely anchored to demand for the country’s exports from the US, so the degree to which higher yields slow the recovery in the world’s top economy will be critical for its Northern neighbor.
On balance, this seems point the way higher for USDCAD, for surely at least some slowdown in US economic activity is in the cards even if the recovery is not altogether derailed (easily the more probable scenario, in our opinion). This points the way lower for the S&P 500 and slashes hopes for any near-term monetary tightening on the part of the Bank of Canada, seemingly opening the door for USDCAD to trim the current valuation gap.
What is Purchasing Power Parity?
One of the oldest and most basic fundamental approaches to determining the “fair” exchange rate of one currency to another relies on the concept of Purchasing Power Parity. This approach says that an identical product should cost the same from one country to another, with the only difference in the price tag accounted for by the exchange rate. For example, if a pencil costs €1 in Europe and $1.20 in the US, the “fair” EURUSD exchange rate should be 1.20. For our purposes, we will use the PPP values provided annually by Bloomberg. We compare these values to current market rates to determine how much each currency is under- or over-valued against the US Dollar. (source http://www.dailyfx.com )
canada interest rate forecast, us canada exchange forecast, canada us exchange rate predictions, us canada exchange rate forecast, usd cad exchange rate forecast, best canadian us exchange rate, interest rate predictions canada 2011, us canada exchange rate forecast in 2011, us canada exchange rate predictions, us canadian exchange rate forecast, us canadian exchange rate forecast 2011, american canadian exchange rate forcast, us dollar against canadian forcast, us canadian exchange rate forecast 2012, usd canada prediction,, usd prediction, CAD$ exchange rate forecast 2011, canadian dollar to us PPP 2011. For the latest updates PRESS CTR + D or visit Stock Market news Today
No comments:
Post a Comment