- With the global economy continuing to struggle, markets desperately need some good news. China, a major source of bearish market sentiment in recent months, now has an opportunity to be a source of hope for the world economy as it presents its five-year plan in March. One can only hope Beijing doesn’t under-deliver. Else, risk aversion could move up a gear and rekindle flight toward USD.
- The greenback’s woes in February was partly due to soft US economic data which had investors pare expectations about the Fed this year. While the trade-weighted USD should give back some of the outsized gains registered in the last two years, it could nonetheless find bouts of strength if the European Central Bank and the Bank of Japan decide to provide more stimulus.
- Mauled by bears and left for dead just a few weeks ago, the Canadian dollar is now back with a vengeance. The loonie’s Revenant-like performance was helped by a softening greenback, but markets also started to question whether or not the Bank of Canada really needs to cut interest rates considering that upcoming fiscal stimulus will provide a boost to the economy. The earlier oil-price collapse suggests there is more upside than downside for the commodity, and as such we remain comfortable with our view that WTI will hit $40/barrel by year-end. While the loonie has room to appreciate, don’t expect a linear movement towards our newly adjusted USD/CAD end-of-year target of 1.32. Currency volatility is the name of the game, more so with Canada’s dependence on short-term foreign inflows and much uncertainty with regards to commodity prices and Fed policy.
Stéfane Marion/Krishen Rangasamy