Goldman Sachs has revised down its USD/CAD forecasts as Canadian dollar fundamentals remain constructive. Despite a recent USD rebound driven by risk aversion, Goldman remains optimistic about CAD strength, supported by oil prices, limited BoC cuts, and potential growth resilience.
Key Points:
New Forecasts:USD/CAD is now forecast at 1.35 (3M), 1.34 (6M), and 1.32 (12M)—lowered from previous targets of 1.36, 1.35, and 1.34 respectively.
CAD Progress and Temporary Setback:CAD had made substantial gains until the latest risk-driven USD rally, which Goldman views as a temporary interruption.
Growth & BoC Policy Outlook:Goldman’s economists expect only one more BoC cut this year. Despite dovish inflation rhetoric from Governor Macklem, the underlying inflation picture remains contained, especially when considering alternative metrics like CPIX.
Policy Lag Still in Play:The Bank sees lagged effects of prior tightening still working through the economy, reinforcing a cautious approach.
Risk vs. Policy Dynamics:In the near term, geopolitical risks are outweighing central bank narratives, but CAD remains more insulated than other FX due to its commodity linkage.
Oil Price Sensitivity:CAD has shown strong performance during oil price shocks, with last Friday’s price surge confirming its status as a commodity-sensitive outperformer.
Conclusion:
Goldman Sachs remains constructive on CAD, viewing recent USD/CAD strength as an opportunity to position for further downside. They expect USD/CAD to grind lower over the coming quarters, driven by relatively benign inflation, a conservative BoC easing path, and oil-linked resilience amid geopolitical risks.
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This article was written by Adam Button at www.forexlive.com. Read More Details
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