The relief rally in risky assets and the setback to the greenback over the last month have weighed on USD/CAD. Still, economists at Danske Bank expect the pair to trend higher over the next months.

An important risk factor lies in oil prices

“We are not convinced that we are yet at the pivot-stage and still pencil in a more aggressive tightening stance from the Fed than currently priced. This is likely to weigh on financial conditions in the coming quarters and we, therefore, maintain an upward sloping profile for USD/CAD. 

“An important risk factor lies in oil prices and any news on both supply (e.g. Iran nuclear deal) and demand. An improved growth outlook and/or more dovish central banks mark the biggest risk factor to our forecast.”

“We now have USD/CAD at 1.30 in 1M (from 1.31), 1.33 in 3M (from 1.33), 1.34 in 6M (1.34) and 1.34 in 12M (1.34).”