The Bank of Canada hiked the key interest rate by 100 bps on Wednesday to 2.50%. Despite the larger-than-expected hike, analysts at Danske Bank continue to see the USD/CAD pair moving to the upside over the next quarters, reaching 1.34 in six months. 

Key Quotes: 

“We still consider USD/CAD as a low beta version of USD/NOK. With our expectations of a stronger USD and a general continued pressure on cyclically sensitive assets we continue to see risks skewed to the topside for the cross. Bank of Canada has now joined the camp of central banks front-loading monetary tightening by delivering both earlier and larger rate hikes. Meanwhile, paradoxically, larger rate hikes pose a headwind to CAD via the CAD asset market taking a hit. According to the CFTC IMM data speculative positioning in USD/CAD is fairly neutral.”

“We forecast USD/CAD at 1.31 in 1M (from 1.31), 1.33 in 3M (1.33), 1.34 in 6M (1.34) and 1.34 in 12M (1.34).”