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May 10 - 10:55 AM

Goldman: What's Behind CAD's Unusual Response to Higher US Rates

By eFXdata  —  May 10 - 09:30 AM

Synopsis:

Goldman Sachs examines the atypical response of the Canadian dollar (CAD) to rising US interest rates, a situation that typically sees less impact on CAD compared to other currencies. The firm delves into the underlying factors driving this unusual behavior, primarily focusing on monetary policy expectations in Canada relative to the United States.

Key Points:

  • Heightened Sensitivity: Despite CAD's historical resilience to US interest rate hikes, recent movements suggest an increased sensitivity.
  • Policy Divergence: The primary driver appears to be the anticipated divergence in monetary policies between the Bank of Canada (BoC) and the Federal Reserve, influenced by the BoC's selection of inflation metrics.
  • Impact on CAD: This divergence has led to greater near-term risks for CAD, making it more vulnerable to shifts in US rate dynamics than in the past.

Conclusion:

Goldman Sachs highlights that the current economic landscape, marked by potential policy shifts in Canada, could lead to unusual movements in the CAD in response to US interest rate changes.

Source:
Goldman Sachs Research/Market Commentary

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