Scotiabank forecasting a short-term correction in Canadian dollar exchange rates

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Published on Friday, 17 August 2012 13:55

Written by Will Peters

International Money Transfers at our sister site

"The dramatic strength in CAD has been interesting, as it has reached beyond where most fundamentals would have suggested" - Camilla Sutton at Scotiabank.

The Canadian dollar (Currency:CAD) is struggling today, however, the overall theme of an outperforming CAD continues to remain intact.

The pound Canadian dollar exchange rate is 0.13 pct up on Thursday night's closing level, GBP-CAD is at 1.5549.

The Australian dollar to Canadian dollar exchange rate is 0.43 pct down at 1.0327.

The US dollar to Canadian dollar is 0.23 pct higher at 0.9889.


"Markets felt a lot like a Friday in the summer through the overnight session, with mostly very small moves in the FX space. Reports of a coming rate cut in China only helped risk assets hold yesterday’s gains – a far cry from the reaction such a rumour would have had a few months ago," says Shaun Osborne at TD Securities.

CAD is essentially flat to yesterday’s strong close.

Over at Scotiabank questions are being asked as to just why the Canadian currency has outperformed the markets to such an extent.

"The dramatic strength in CAD has been interesting, as it has reached beyond where most fundamentals would have suggested," warns Camilla Sutton at Scotiabank.

Analysis at Scotiabank shows that CAD has moved beyond both oil prices and interest rate spreads.

"There are other misalignments as well. For instance MXN, typically more volatile than CAD, rallying more in good times and falling faster in bad times; has stabilised over the last few weeks, as CAD has continued to rally," says Sutton.

Sutton goes on to warn that a pullback is possible:

"All indicators are that the strength in CAD has been flow based (likely official reserve diversification and M&A related); making it particularly susceptible to some give back."

Scotiabank are medium term CAD bulls; they are concerned that in the near‐term CAD might have gotten a bit ahead of itself here.