According to analysts from Brown Brother Harriman, the Canadian dollar is being more sensitive to the short-term interest rate differentials with the US, rather that oil prices.
“The Bank of Canada meets Wednesday. Last month officials acknowledged that growth could be somewhat lower than previously anticipated. Those fears have likely materialized, and the central bank may shave its growth forecasts for this year and next. This means that it will take Canada longer to close its output gap. It not only pushes out the first hike, but it leaves the door ajar for further easing if the economy falters further.”
“While the Canadian economy may need additional stimulus next year, many economists are divided how it will be delivered. Some see the possibility of a rate cut, while others expect more fiscal support.”
“The US dollar has edged higher against the Canadian dollar in each of the months in Q3. It has extended the advance through the first half of October, though barely (0.12%). Last Thursday, after briefly poking through CAD1.33, the US dollar posted a reversal pattern and closed below the previous day's lows.”
“We see the Canadian dollar as being more sensitive to the short-term interest rate differential with the US than oil prices presently. The two-year differential has widened from a five bp premium in early-July to almost 27 bp three months later. It has since pulled back and is near 21 bp today, the lowest since September 22.”