The Canadian dollar (CAD) has weakened to levels not seen since the pandemic. Paradoxically, the loonie could recover on slowing US economy, economists at Standard Chartered report.

Bank of Canada is likely to start easing in Q4-2023

“We now expect BoC to hike 50 bps in Oct, 25 bps in Dec, taking the end-2022 policy rate to 4% (3.5% prior). We also now expect a 25 bps hike in Jan 2023, and a 25 bps cut in Q4, ending 2023 at 4% (3.5% prior). We see 50 bps of additional cuts in 2024, with the year-end policy rate unchanged at 3.5%.”

“Most of the CAD weakness is due to the ramping up of market risk aversion, in our view. Paradoxically, any indication that the US economy is slowing would likely improve the risk-taking environment and support the CAD, despite the Canadian economy’s exposure to a US slump.”