USD/CAD: On track to fall back below 1.30 but Canada's resilience to higher rates will be challenged – MUFG

USD/CAD drops closer to 1.3000 level. Economists at MUFG Bank analyze the pair’s outlook.

Near-term fundamentals supportive for stronger CAD but for how long?

We expect USD/CAD to fall back below the 1.3000 level encouraged by: i) broader USD weakness, ii) the price of Brent rising back above $80/barrel and iii) improving investor risk sentiment. 

Beyond the near-term, we still expect the negative impact of higher rates on Canada’s highly indebted households to become more evident and eventually trigger a reversal of the CAD’s current bullish trend.

 A break below 1.3000, would provide more attractive levels to sell CAD.