Quotes from BofA Merrill Lynch:- Our view for a higher USD-CAD has continued to play out in our favor, with our short-term target at 1.14 for the end of this year. While much of the Canadian dollar’s drop has logically been the result of the decline in oil prices, rate differentials have also arguably played a key role. While the value of USD-CAD explained by oil has been rising, rate differentials have also played a crucial role in explaining the weakness in Canadian dollar, as they have with many risky currencies. – Still, we would argue that the decline in CAD may stall out going forward. USD-CAD is fairly close to levels that it previously approached earlier this year, when WTI was closer to US$100/barrel. In our view, a reversion in oil prices, as well as a relatively robust US growth picture that should ultimately benefit the Canadian economy, will help support the CAD next year. – Of course, in the short-term, the upcoming OPEC meeting on November 27 presents substantial event risk for oil, and thus potentially impact USD-CAD. Moreover, deflationary risks that push the Fed into delaying rate hikes could well wind up moving the CAD higher, as the Bank of Canada currently remains locked in its current rate. In the medium-term, however, we still focus on both oil and a solid US outlook, which we do believe will move the Canadian dollar modestly higher, in contrast to many of our USD forecasts.
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