Rally in Canadian dollar may have run its course

Despite hawkish comments from the Bank of Canada, we don’t expect the rally in the Canadian dollar to go much further. Given signs of a correction in the housing market, we doubt that the BoC will hike interest rates this year, while we still expect the US Fed to raise rates more quickly than investors anticipate. Meanwhile, after a brief rally this year, we expect lower oil prices to weigh on the dollar next year. After ending this year at about US$0.75, we therefore expect the Canadian dollar to drop back to US$0.73 in 2018.