BAML says USD/CAD will bounce
Bank of America Merrill Lynch FX Strategy Research expects the Bank of Canada (BoC) to hike 25bp on 12 July, with a neutral statement.
"Strong GDP growth in the last three quarters is a clear indication that the economy does not need as much monetary stimulus as provided by two 25bp cuts in 2015, when the economy was in a recession.We believe conditions are right for the BoC to start withdrawing some of that stimulus,"BofAML adds.
"We still see CAD as somewhat overvalued, especially in light of the recent moves in oil as well, and expect a higher USD-CAD at the end of the year, to 1.35...
We do not have long-term CAD weakness extending into 2018, however. Instead, we look for a very modest reversal of the softening we expect this year. We still see some downside for CAD, as even with rates at these levels, the currency is overvalued by around 5-10%, in our view, relative to current fundamentals," BofAML adds.
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