We maintain a bullish view on USD/CAD on a 3-12M horizon. That said, in the near-term risks are for a further setback to the broad USD given weakness in US figures and as markets price in the first rate cut for March. This is likely to benefit CAD albeit not by as much as other cyclically sensitive currencies.

We expect the Bank of Canada to keep policy rates unchanged until Q1 2024 when we pencil in the first rate cut. 

A persistent move lower in the cross would likely require a stronger global growth backdrop than what we pencil in or a very ‘hard landing’ requiring a sharp easing of global monetary conditions, including a weaker USD.

Forecast: 1.34 (1M), 1.37 (3M), 1.41 (6M), 1.44 (12M)