USD/CAD has moved lower over the last month driven by the broad-based setback to the US Dollar and the rebound in oil supporting the Loonie, explained analysts at Danske Bank. They forecast USD/CAD at 1.35 in a one-month period and at 1.37 in six months.

Key quotes:

“We pencil in a higher cross driven both by a rebound in the broad dollar but also on the notion of relative monetary policy. Bank of Canada has turned to an “on-hold”-stance while we expect the Fed to deliver an additional 25bp hike. Also markets price a more aggressive cutting cycle from the Fed in H2 which we think is overdone.”

“While we pencil in broader-based USD strength for the year ahead we also think CAD is in a relatively strong position compared to peers which limits the topside potential in USD/CAD. While the Canadian housing market remains a threat we still think the growth back-drop and the energy-reliance make for a much better cocktail than found in most other asset markets.”