USD/CAD: Greater BoC caution to soften the loonie – MUFG

So far in Q3, the Canadian dollar is the fourth worst and in August it is the second worst performing in G10. Economists at MUFG Bank believe that the outlook for the loonie is darkening.

The housing market in Canada remains a key risk

“Given the reversal in oil prices, the signs of a loss of momentum for the Canadian economy (May GDP flat, June expected 0.1%), and more specifically the housing market slowdown, we are turning less favourable on CAD than before.” 

“Our sense is that we could see a more pronounced CAD selloff on a weaker CPI print today than CAD strength on a stronger CPI.”

“The 100 bps hike by the BoC leaves them better placed to slow the pace to 50 bps given the global backdrop, some signs of slowing inflation and the downside risks to growth.”