Winnipeg (MarketsFarm) – The Canadian dollar remains within a relatively stable range despite uncertainty in the global financial markets.
“Even though there’s been a lot happening globally… the (Canadian) currency itself has been very well behaved,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
“It’s been trapped in very tight ranges around the (United States) dollar for the better part of a year,” said Chandler placing that range at roughly C$1.31 (76.3 U.S. cents) to C$1.35 (74.1 U.S. cents).
RBC expects that rangebound activity will continue over the next six to 12 months, although with a bias towards the weaker end of that range for the currency. “There’s no big valuation push or pull for the currency, it’s not severely over or under valued,” said Chandler.
The Bank of Canada’s latest interest rate decision on Sept. 4 to keep its key overnight rate unchanged at 1.75 per cent was supportive for the loonie, as the Bank was not as dovish looking forward as the market had anticipated, according to Chandler.
The Bank’s next announcement won’t come until October, with the U.S. Federal Reserve interest rate announcement, U.S./China trade talks, and Canadian federal election in the meantime all raising the potential of nearby swings in the Canadian dollar.
“There’s a lot of event risk around the (Canadian) currency,” said Chandler.
While there could be some short-term choppiness, the longer-term outlook remains relatively steady. “At this time next year, we’re looking at it to be C$1.33 (C$75.2), closer to C$1.35(74.1 U.S. cents),” said Chandler.
RBC expects the U.S. Federal Reserve won’t cut interest rates as much as the market currently expects, which would keep the U.S. currency somewhat firm relative to the Canadian dollar.