USD/CAD: Risk-on narrative to support the Loonie this year – HSBC

The Canadian Dollar may enjoy some modest upside, buoyed by risk appetite, rather than rates, in the opinion of economists at HSBC.

Risk appetite matters far more than rates differentials for USD/CAD

“Our analysis suggests that risk appetite matters far more than rates differentials for USD/CAD.” 

“We believe a potential prolonged pause in the monetary tightening cycle means that the risk of an over-tightening has retreated, reducing the risk of a domestic recession and the threat of a more onerous downturn in the housing market. This may open the door to some risk appetite-related upside for the CAD over the coming few weeks.” 

“The BoC provides the first example of an end, albeit a conditional one, to a developed market’s tightening path in the current cycle. Others are likely to join in the coming months, building a risk-on narrative that will support the CAD this year.”