We are pleased to bring you the latest edition of the series produced by our colleagues in RBC Capital Markets, hosted by George Davis, CMT, the award winning Chief Technical Analyst for Fixed Income and Currency Strategy. In this installment George discusses the shift higher in his USD profile which in turn led to changes to his Canadian dollar forecast.
Stronger than expected growth in the US has seen the market aggressively walk back expectations for rate cuts this year. With the potential for a soft landing more likely our US rate strategist has removed two rate cuts from their forecast this year. This would leave the Fed Funds rate at 4.75 by year end, with the market pricing in 4% by the end of 2025 versus our forecast of 4.25%. Fewer expected cuts should lead to a firmer USD.
Our rate forecast in Canada has not changed with 100 basis points in cuts expected, starting in June. As a result, George has raised his forecast profile for USDCAD, now expected to peak at 1.3700 in Q2, with prices trailing off to 1.3300 by year end. Thus, the expected trading range for this month is slightly higher at 1.3300 to 1.3800. USD sellers should look towards the 1.3600/1.3700 area while the 1.3300/1.3400 area should provide an opportunity for USD buyers.