Title: USD/CAD Outlook: CIBC Forecasts Gradual Decline Through 2026 While RBC Expects Range-Bound Price Action
By MarketScreener (Original Article Source)
The USD/CAD pair remains a focal point for North American forex traders as both economic fundamentals and policy expectations continue to shift in 2024. Canadian Imperial Bank of Commerce (CIBC) and Royal Bank of Canada (RBC) have recently updated their forecasts, offering contrasting insights on the short and long-term direction of the loonie.
CIBC anticipates a gradual weakening of USD/CAD through 2026, attributing the movement to improving Canadian fundamentals, a more neutral Bank of Canada policy stance relative to the U.S. Federal Reserve, and narrowing interest rate differentials. Conversely, RBC maintains a more cautious near-term view, projecting range-bound trading for USD/CAD through much of 2024 due to macroeconomic uncertainty and limited central bank divergence.
Below is a detailed breakdown of both banks’ perspectives, along with additional insights from the wider foreign exchange and macroeconomic community.
Key Highlights:
– CIBC expects USD/CAD to gradually decline through 2026.
– RBC forecasts a range-bound USD/CAD between 1.34 and 1.38 in the near term.
– U.S. and Canadian monetary policy divergence is a central factor in the outlook.
– Canadian fundamentals, including energy prices and GDP growth, will play a significant role.
– Global risk sentiment and commodity fluctuations will influence the Canadian dollar due to its commodity-linked nature.
CIBC’s Long-term Forecast: Loonie’s Strengthening to Continue Through 2026
According to CIBC strategists, the Canadian dollar is set to appreciate over the medium to long term. The bank projects USD/CAD moving lower—indicating a stronger loonie—driven by a mix of domestic economic resilience and converging interest rate policies between the U.S. and Canada.
CIBC’s Rationale:
– Interest Rate Differentials: CIBC anticipates narrowing interest rate differentials between the U.S. Federal Reserve and the Bank of Canada. As the Fed gradually cuts rates, the need for similar action by the Bank of Canada will be limited if inflation in Canada remains under control.
– Commodity Prices: Canada is a major exporter of oil and other natural resources. Strength in commodity prices, particularly crude oil, tends to support the loonie. CIBC argues that sustained demand for Canadian energy exports in the U.S. and overseas will help underpin CAD strength.
– Fiscal Positioning: Canada’s public finances, while strained, remain relatively stable compared to other G7 nations. Lower deficits and proactive fiscal policy could support long-term investor confidence in Canadian assets.
– Economic Fundamentals: Despite global headwinds, Canada’s labor market, housing sector, and consumer demand remain resilient. CIBC believes these fundamentals will keep the Bank of Canada more neutral in stance, compared to potential policy loosening by the Fed, encouraging capital inflows into CAD-denominated assets.
Projected USD/CAD Levels (According to CIBC):
– 2024 End: 1.35
– 2025 End: 1.32
– 2026 End: 1.30
While not a rapid decline, the projection points to steady strengthening in CAD over the next two years.
RBC’s Near-Term View: Choppy Markets and Range-Bound Trade for 2024
Royal Bank of Canada (RBC) forecasts a less directional path for USD/CAD in the short term. RBC strategists expect the currency pair to remain constrained within a relatively narrow trading range for the rest of 2024. The bank forecasts fluctuations within 1.34 to 1.38, citing limited catalysts for a breakout in either direction until there’s more clarity from central banks.
RBC’s View is Based on the Following Observations:
– Inflation Uncertainty: Despite progress on disinflation, both Canada and the U.S. are still above
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