FXStreet reports that according to economists at ING, prospect of a 2022 rate hike in Canada are set to assist CAD in the medium-term.

“The Canadian dollar rallied after the meeting thanks to the more hawkish 2022 forward guidance and a set of upbeat economic forecasts, while the C$1 B worth of tapering was largely expected. In the short run, however, the loonie may struggle to emerge from the recent soft momentum, as the covid emergency in Canada is forcing some re-rating of domestic growth expectations.”

“Assuming that the current restrictions prove effective in curbing the contagion in Canada – the country has significantly increased the pace of vaccinations – and given that our commodities team believes oil prices will stay supportive in the remainder of the year, CAD may be left without any meaningful short-term dampening factor.”

“An improved rate profile, thanks to markets frontloading a rate hike in 2022 and further scaling back of QE this year, all point to further strength in the loonie. In line with our bearish USD profile, we expect USD/CAD to touch 1.20 – and possibly move below those levels – by the end of 2021.”