OANDA Updated Q2 FX Quarterly Outlook: A patient period is upon us

Commodity Currencies

The Canadian dollar has benefitted from stronger oil prices but dimming prospects for the economy has put a cap on the rally.  The Bank of Canada (BOC) went from having a tightening bias at the start of the year to more of a wait and see approach, with financial markets pricing in the next move to be a rate cut.  Rates are likely to remain below the bank’s neutral range as inflation is slightly below the mid-point of their target range and GDP remains soft.

The United States–Mexico–Canada Agreement (USMCA) has not yet been finalized and we could see this deal struggle to get through Congress or we could see President Trump scratch the deal.  Any uncertainty on the trade deal could put pressure on both the loonie and Mexican peso.

The Australian dollar has been stuck in a range as markets ponder whether the Reserve Bank of Australia (RBA) will deliver a rate cut over the next couple of policy meetings.  Dovishness has prevented the Aussie-dollar from seeing any major rallies on trade deal optimism between China and US.  Even if we do see a rate cut by the RBA, we could see the improving global macroenvironment ultimately support a move higher for high-beta currencies.

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