Looking at the drivers for the CAD, the short-term yield differential and still high Oil prices should be conducive to a stronger Dollar. That said, the recent risk-off USD appreciation has pushed back most major currencies. The rise of long-term yields hasn’t been accompanied by a significant reduction on the short end of the curve and leaves a lot of questions in regard to where the cycle is headed.

We believe the repricing of hikes for the Bank of Canada is likely overdone and the CAD could see an interval of weakness especially if the economy is to fall in technical recession in the coming quarters.

Our scenario also assumes difficulties for the US economy in the coming months and that should be accompanied by an easing in monetary policy by the Fed. That could set up a stabilization of the Canadian Dollar and even some appreciation in the later part of 2024.