Market Update: Dollar update

Market Update: Dollar update


The Canadian dollar fell
during the third quarter to just above 75 cents U.S. Now, our view over the coming 3 to 6 months is that we’re going to continue
to see some modest weakness out of the Canadian dollar relative to the United States, to the range of about
73 to, say, 75 cents. The reason for this is that as we believe,
and if we are correct, that the Bank of Canada
starts its own easing posture with the October 30th statement, then the interest rate differential
between Canada and the United States will start to widen out again. As that interest rate
differential widens out, that puts some downward pressure
on the Canadian dollar. Over the course of this year, as it became clear that
the Federal Reserve was going to start its easing, there was a potential for the U.S. dollar
to weaken relative to the Canadian dollar and that’s what we saw
a little bit earlier in the late second and
early third quarter. However, now that we believe
that the Bank of Canada is going to follow with our
own interest rates cuts in October, plus one more,
we think, before the end of this year
or beginning of next year, as that starts to be priced
into the bond markets, it will be priced into
the currency markets and with that, we believe that we’ll see a
slightly weaker Canadian dollar over the next 3 to 6 months
than we have today, which again puts it in the range of
approximately 73 cents to 75 cents. So, not a lot of risk
to the downside, but a little risk
to the downside that would support U.S. dollar
denominated securities.

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