Krishen Rangasamy, analyst at National Bank of Canada, points out that the impact of unfavourable Canada-U.S. interest rate spreads continues to dominate and suffocate the Canadian dollar.
“The Canadian dollar continues to tread water despite USD weakness. Having depreciated more than 2% against a tired USD, the loonie is among the worst performing major currencies this year.”
“The impact of unfavourable Canada-U.S. interest rate spreads continues to dominate and suffocate the loonie. The real spread is indeed the most negative since the summer of 2015. Back then, there were concerns among investors about Canada’s ability to overcome the oil price crash.”
“This time, the fear factor seems to be more about NAFTA renegotiations, the housing market (due to B20 regulations) and the sustainability of consumption growth (due to the heavy debt load of households), all of which are hurting spreads and hence the Canadian currency. But if, as we expect, the fear factor fades over the coming months, USDCAD could be heading back towards 1.20.”