George Davis Report | May 2020
In this installment George discusses how markets have recently begun to stabilize from the initial shock of Covid-19. As a result USDCAD tumbled from above 1.4600 down to the 1.4000 area. Tiff Macklem has been appointed as the new BoC Governor and George feels this should be a relatively smooth transition with no major changes in policy stance. With inflation expected to be below target over the next couple of years, from 1.3 to 1.5% (versus 2%), the bank is expected to maintain their accommodative policy while keeping interest rates at 0.25%. George goes on to mention that equity markets have overtaken oil as the primary driver of CAD, suggesting that this is the best proxy for risk sentiment. An expected 40% decline in GDP growth for Q2 should lead to one more phase of CAD weakness towards the 1.4300 level. USD sellers should look at the 1.4150 to 1.4350 area to lighten positions, while the 1.3700 to 1.3900 area should look attractive for buyers of USD.
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