The Canadian Dollar was the third best performing G10 currency in February. Underperformance should emerge later in the year, economists at MUFG Bank report.

USD/CAD to be more driven by external factors for now

“Stronger domestic data but weaker inflation will be enough to keep the BoC on the sidelines and hence USD/CAD is likely to be more driven by external factors for now and with 2yr UST bond yields at cyclical highs and Fed rhetoric so hawkish, we see upside USD/CAD risks over the short-term before CAD can recover.”

“Slower US growth will likely see USD/CAD lower later in H2 with CAD underperforming non-USD G10 FX.”

“USD/CAD – Q1 2023 1.3600 Q2 2023 1.3500 Q3 2023 1.3400 Q4 2023 1.3200.” 

“EUR/CAD – Q1 2023 1.4280 Q2 2023 1.4580 Q3 2023 1.4740 Q4 2023 1.4780.”

“CAD/JPY – Q1 2023 100.00 Q2 2023 98.520 Q3 2023 97.010 Q4 2023 96.210.”