USD/CAD to break below 1.2525 as fundamentals turn the tide in favour of the loonie – MUFG

The Canadian dollar shows signs of improvement and has been one of the better performing G10 currencies so far this week. Economists at MUFG Bank note that fundamentals are moving in favour of a stronger CAD.

Loonie boosted by ongoing rebound in the price of oil and stronger than expected inflation data 

“The price of Brent has almost fully reversed the sell-off from between July and August and is now trading back above $75/barrel. Market concerns over the negative impact of slowing global growth on demand appear to have eased over the past month.”

“Canadian CPI report for August revealed that headline inflation reached an eighteen-year high at 4.1% in August. Core inflation continued to edge higher as well in August. While base effects are expected to ease in the coming months and some of the inflationary pressures from the economy reopening, there remains a risk that inflationary could prove more persistent. It will keep pressure on the BoC to keep normalizing policy by slowing QE purchases further at their next meeting on 27th October.”

“We continue to see scope for the loonie to rebound from weaker levels after underperforming between June and August driven by growth concerns.”

“USD/CAD will need to break through key support between 1.2525 and 1.2575 before to provide stronger bullish signal that the tide is beginning to turn.”

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