March 2021: FX Outlook
The Canadian economy has performed strongly in the last quarter, exceeding analyst expectations as it continues to recover from the pandemic. Increasing Canadian yields, including yield spreads, have been a source of this increase as investors continue to drive demand for the CAD. In addition to recent positivity surrounding the Canadian economy, tightening monetary policy is not expected in 2021, giving the CAD further potential to post gains.
The CAD has been further supported by broad increases in commodity prices, as global demand strengthens. Consequent oil demand, a historical bellwether of the performance of the CAD, is thought to be bolstering the recovery of the Canadian economy and CADUSD.
Despite the considerable positivity surrounding the CAD, slower than expected vaccine distribution and supply restrictions may extend the recovery. With provinces considering re-entering lockdown, aforementioned positivity for the Canadian economy may rapidly reverse. The additional threat of new variants arising in the interim of vaccine rollouts will remain a focus for an economic recovery that is relying upon an efficacious vaccine. Continued spread, and its associated increased mutation probability, remain a significant focal point for the recovery.
Currently, the Canadian economy is expected to return to pre-pandemic levels by the end of 2021, with real GDP growth greater than 6%. The bullish expectations for the Canadian economy are reinforced by the federal government’s decision to reduce stimulus measures, as the economy continues to exceed expectations. Consequently, consensus suggests a rangebound trajectory for the CADUSD at 1.24.
Forecast Table
Bank |
2021 – Quarter 2 (USD/CAD) |
2021 – Quarter 3 (USD/CAD) |
Scotiabank |
1.26 |
1.23 |
Bank of Montreal |
1.26 |
1.26 |
Canadian Imperial Bank of Commerce |
1.24 |
1.27 |
Toronto Dominion Bank |
1.21 |
1.22 |
National Bank |
1.25 |
1.23 |
*Forecast Table is for mid-market rates, and subject to change anytime.
By Admin | March 31, 2021 | Monthly Canadian Dollar Outlook/Forecast |
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