FX Weekly

This is an enormously important period for Canada and the BoC, and things really heat up in the week ahead. The CAD could well turn out to be one of the hottest currencies to trade in 2014. This will be the case especially if the BoC remains credible and provides well-communicated direction for traders. However, the critical nature of this period doesn’t end with these factors. It begins with them. Pre-crisis and through the crisis, Canada and the CAD benefitted immensely from perceived strengths. Healthy debt dynamics, pre-emptive macro prudential policies, healthy banks, and reserve interest spoke volumes. In the post crisis world, economies have to work harder to maintain perceptions of strength as the world economy changes. Some emerging economies are rebalancing, the US is importing fewer goods from abroad, and Fed easing is gradually winding down. The CAD devaluation is therefore the first but not the last layer of adjustment for Canada.