USD/CAD Monthly Fundamental Forecast July 2012

Outlook and Recommendation

The USD/CAD closed the month at 1.0167 as the pair actually remained in a tight range as shown below.

The Canadian dollar (CAD) has traded between 0.9573 and 1.0204 in the first six months of 2012 and is less than 1% above where it closed 2011. Looking out to the second half of the year, we expect a bias for a stronger CAD, but for the currency to follow a similar pattern to the first half of the year, where it struggles to break materially and sustainably away from parity. For CAD, it is the relative valuation that matters and judged against its peers it shines, even as the absolute story has faded. The themes that have shaped FX trading in the first half of 2012 have been: 1) an escalation in the European crisis; 2) a shift in the outlook for global growth; and 3) the central bank response. For CAD the most direct consequence of Europe has been the pressure it has put on risk aversion and the potential negative impact on global growth. As risk aversion rose in May, CAD weakened; however, even as markets continue to feel risky, volatility and other measures of risk have dropped back to subdued levels, allowing CAD to stabilize and begin to retrace some of its late spring weakness. On the back of Europe, the outlook for global growth has deteriorated. CAD is a pro-cyclical currency, doing well in periods of strong global growth and struggling in periods of weakness.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Central Bank Name: Bank of Canada

Date of next meeting or last meeting: Jul 17

Current Rate: 1.00 % (+ 0.25) At the time of this writing the BoC has met and held rates.

Statement highlights of last meeting:The Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.

Economic events for the month of July affecting CAD