The trajectory of the Canadian dollar has been a hot topic of discussion lately, especially in comparison to the US dollar. With the Canadian dollar fading from its peak of 56 cents US to around 73 cents US, there is a sense of bearishness surrounding its future. Mark McCormack, managing director and Global head of FX and EM strategy at TD, sheds some light on the situation.
Mark believes that the weakness in the US dollar is not fully priced in yet, despite some expectations of rate cuts from the Bank of Canada and the Federal Reserve. The upcoming election in the US adds another layer of uncertainty to the mix, as the outcome could have significant implications on inflation and monetary policy.
If the US dollar continues to strengthen, it could have far-reaching consequences on global growth, Emerging Markets, and commodities. A softer US dollar tends to benefit commodities like gold, but a stronger dollar could lead to global growth downgrades and increased volatility in the FX markets.
The Japanese Yen is also a currency to watch, as the Bank of Japan has room to tighten monetary policy and potentially strengthen the Yen. With the Yen currently trading below its longer-term fair value, there is potential for it to appreciate in the coming months.
Overall, the future of the Canadian dollar and other major currencies remains uncertain, with various factors like inflation, geopolitical uncertainty, and global growth playing a role in shaping their trajectories. As we head into the second half of the year, it will be interesting to see how these dynamics unfold and impact the FX markets.
