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15.12.202112:12 Forex Analysis & Reviews: USD/CAD: Canadian dollar is weakening due to several factors

Exchange Rates 15.12.2021 analysis

It has been a busy week for the Canadian dollar – it has to break through the resistance of the downward trend and resist the current strategy of the regulator. These factors weaken the specified currency, which tends to stay afloat.

Today, the Canadian currency faced additional pressure on the background of sales. The catalyst for the negative phenomenon was the updated monetary policy by the Bank of Canada. It can be recalled that the regulator has maintained the target inflation rate of 2% for the next five years. At the same time, the government instructed the Bank of Canada to use the current MP to reduce unemployment, if this does not threaten price stabilization. Analysts said that the dual mandate allows the authorities to refrain from raising the rate for a long time.

The Canadian dollar currently lost ground for a while. On Tuesday, it collapsed to its lowest level in the last week. The sharp decline in oil prices and the expectation of updating the government budget worsened the situation It can be remembered that the projected budget deficit of Canada, envisaged for the 2021-2022 fiscal year, has been adjusted to 144.5 billion Canadian dollars ($112.5 billion). According to experts, this is 6.6% less than the previous figures.

On this wave, the USD/CAD pair rose above the level of 1.2800. Experts suggest that the pair will gain 1.5-2% in the near future and surge to 1.3000. There are prerequisites for this: on Wednesday morning, this instrument was around the level of 1.2862, trying to increase higher, but without success.

Exchange Rates 15.12.2021 analysis

In this situation, experts assume that the Bank of Canada will follow the path of the Fed and sharply raise rates in 2022. Currency strategists at Scotia Bank believe that the regulator is able to launch a tightening cycle much earlier than its colleagues. The implementation of such a scenario contributes to the growth of CAD against the USD, as well as against the euro and yen.

Scotia does not rule out that the Bank of Canada will raise the rate by 100 bps in the second half of 2022, and by another 100 bps in 2023. This will provide the regulator with superiority over the Fed on the forecast horizon. In the coming year, commodity currencies, including the Canadian dollar, are receiving support amid the restart of the global economy in conditions of a long shortage of hydrocarbon supplies. According to experts, this will improve the indicators of Canada's trade balance and help the growth of the national currency.

Larisa Kolesnikova,
Analytical expert of InstaSpot
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