UBS: CAD is set to weaken
Analysts at UBS believe that USD/CAD may rise to a 5-year high of 1.1500 over the next year. In their view, as stronger US economic growth prompts the Fed to raise interest rates. In this case the yield advantage of Canadian corporate debt will disappear, and the inflow of money which has supported CAD amid an exodus from the country’s government debt will be also gone. Most of the buyers of Canadian debt are actually US investors, and money will go back from Canada into the US, and Canadian dollar will weaken.
Canada reported yesterday the record biggest monthly decline in the investment in the government debt in June, while foreigners added to their holdings of Canadian corporate bonds for a fifth straight month. UBS warns that Canadian economy isn’t getting the same boost from US growth as it did in the past and will need the currency to weaken further to help.