Canadian Dollar forced lower on negative developments, but CAD should find support from economy and AAA rating

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Published on Monday, 25 June 2012 13:24

Written by Sam Coventry

RBS back the Canadian dollar in the medium to long term.

The Canadian dollar (Currency:CAD) is weak having lost 0.4% since Friday’s close, but still trading within Friday’s range. (Please see our latest currency forecasts on our IMT site, access is Free via this Facebook gateway page).

"Developments over the last week were generally negative for interest rate expectations in Canada and by default CAD," notes Camilla Sutton at Scotiabank.



Looking at the spot rates, the pound to Canadian dollar exchange rate is 0.34 pct higher at 1.6028, the US dollar to Canadian dollar rate is 0.58 pct high at 1.0303, and the Australian dollar to Canadian dollar rate is 0.07 pct down at 1.0300.

For today the CAD is weighed down by external factors, most notably the Eurozone crisis and concerns that this has in turn prompted a slowdown in China - a key driver of commodity prices - to which the Canadian dollar is particularly sensitive.

But, the medium to long term outlook for the Canadian currency is bright argue RBS.

In the RBS FX Monthly Outlook note to clients, Brian Kim says:

"CAD performance was mixed versus the other G10 currencies over recent weeks as the BoC left its policy rate unchanged and 1Q GDP growth was less than the Bank had anticipated.

"While there were some bright spots among the domestic data releases, external uncertainties appear to be larger factors for the CAD and we continue to think that will remain the case.

"At present, concerns on the US growth outlook and the Euro-area debt crisis are chief among the uncertainties.

"We previously adjusted the forecast profile for the CAD as we tempered our outlook given the external factors but we still think that over the medium-term a continued modest recovery in the US economy and Canada’s AAA rating will benefit the CAD."