JPMorgan says USD/CAD will rise early next year
JPMorgan is out with a new forecast for USD/CAD to rise to 1.36 in the first quarter of 2020 before climbing to 1.38 by year end.
They note that the Canadian dollar has been the top performer this year but say it will go "from good to bad, but not quite ugly."
"The foundation on which CAD outperformed this past year is liable to dissipate into 2020,"JPM analysts wrote in their latest forecast.
"This is due largely to the fact that the foremost drivers of 2019 cyclical outperformance in Canada were temporary phenomena," they wrote.
"Canada will be more vulnerable to a local growth slowdown in 2020, to the detriment of CAD, particularly as we expect a [Bank of Canada] cut in January."
The Bank of Canada meets tomorrow and expectations for a cut are minimal but many economists see them sending a dovish signal.
The main drag on the loonie that they anticipate is softer global growth and dissipating temporary local factors.
"Despite our expectations that Canada loses its cyclical exceptionalism and CAD unwinds some of its outperformance, the resulting currency weakness will be only modest, rather than large and broad," they wrote.
"First and foremost, CAD should retain a decent yield buffer, as we are only calling for a reversion to trend growth (albeit the lower end of potential), rather than a sharper, sustained sub-trend rate or even contraction."
