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Feb 22 - 06:55 PM

Danske: Bullish Outlook on USD/CAD Towards 1.44 Amid Global Monetary Conditions

By eFXdata  —  Feb 22 - 03:00 PM

Synopsis:

Danske Bank presents a bullish perspective on USD/CAD, noting the Canadian dollar's relative resilience this year compared to other commodity and cyclically sensitive currencies. The expectation of global monetary conditions tightening—as markets scale back rate cut expectations—should favor the USD and impact commodity-sensitive currencies like the CAD. USD/CAD is seen as a lower-beta counterpart to USD/NOK, with Danske maintaining a bullish stance over a 3-12 month horizon targeting 1.44 over the medium-term.

Key Insights:

  • Global Monetary Conditions: The anticipated tightening of global monetary policies, with reduced rate cut expectations for this year, is expected to bolster the USD while pressuring cyclically and commodity-sensitive currencies, including the CAD.

  • Bank of Canada's Policy Rate: Danske predicts the Bank of Canada will hold policy rates steady until June 2024, at which point the first rate cut is expected. Relative rates are considered a neutral factor for USD/CAD.

  • USD/CAD Movement: For USD/CAD to move significantly lower, it would require either a stronger global growth outlook than currently forecasted or a severe "hard landing" that necessitates a rapid easing of global monetary conditions, including a weaker USD.

Conclusion:

Danske Bank's analysis suggests that the CAD's performance this year has been stronger than other currencies in similar economic positions, but future global monetary policy adjustments are likely to support the USD and offer upside potential for USD/CAD. The trajectory of USD/CAD will closely follow global monetary policy shifts and the broader economic landscape.

Source:
Danske Research/Market Commentary

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