The National Bank of Canada revised its year-end target for the USD/CAD pair from 1.27 to 1.32. however, they warn that the reopening of the Chinese economy, coupled with the disruption of commodity supplies due to the war in Ukraine, will help limit the depreciation of the Canadian Dollar.

Weak Canadian GDP = BoC pause

“While job creation remains strong, a lacklustre GDP report and slower than expected inflation point to a divergence in monetary policy between Canada and the US. While our new spread forecast is not good news for the Canadian dollar in the near term, we still believe that the reopening of the Chinese economy, coupled with the disruption of commodity supplies due to the war in Ukraine, will help limit the depreciation of the CAD.”

“Under our new US scenario for growth and interest rates, we see USD/CAD lingering in the 1.36-1.39 range through the first half of 2023, before making comeback in the second half of the year when the Fed finally ends its tightening campaign. Our new year-end target is 1.32 (1.27 previously).”