Canadian Dollar: Cautious outlook into year-end – NBC
National Bank of Canada (NBC) strategist Kyle Dahms analyzes recent Canadian Dollar (CAD) volatility, noting modestly positive correlation with WTI but stronger links to Gold and two-year yield spreads.
The National Bank of Canada (NBC) analyst Kyle Dahms provides a cautious outlook for the Canadian Dollar (CAD) as the year draws to a close. Dahms identifies a modestly positive correlation between the CAD and WTI oil prices, but stronger ties to gold prices and two-year yield spreads. He suggests that expectations of a Bank of Canada (BoC) interest rate hike compared to a Federal Reserve rate hold have reduced Canada’s yield disadvantage.
However, Dahms maintains a cautious stance on the CAD through the end of the year due to risks stemming from commodities, interest rates, and trade tensions. The narrowing yield gap is seen as the primary reason for recent CAD recovery, with further gains potentially reliant on guidance for future BoC actions rather than the hike itself.
A more substantial appreciation would necessitate a reduction in trade tensions and a sustained narrowing of Canada's yield disadvantage.
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