The US recession outlook suggests the USD/CAD pair may delay its decline until later in 2023, according to economists at Scotiabank.

CAD’s performance through US recessions is mixed

“For the CAD, slower growth in the US is likely to go more or less hand in hand with slower growth at home; indeed, our macro-economic outlook anticipates a mild recession a little later in Canada (H1 2023).”

“The CAD’s performance through US recessions is mixed but, on average, USD/CAD declines are very modest in the early stages (-0.14% on average in the first three months). USD/CAD tends to strengthen (average gain of 1.6%) over the six-month timeframe but, again, trends are mixed.”

“The bottom line is that a sustained decline in USD/CAD may be delayed by a US slowdown until later in 2023 (when we assume a rebound in risk appetite will lift the CAD) and the CAD may soften somewhat on the crosses in early 2023 as North American FX underperforms.”