USD/CAD
Loonie strength to extend into 2H22

Current spot: 1.2840

The loonie has been the best performing G10 currency in the past month (+3% vs USD), benefiting from a desirable combination of rising oil prices, limited exposure to main sources of global risks (Russia/Ukraine and China) and a hawkish domestic central bank.
In our view, the USD/CAD downtrend has further to go, as the factors that have helped CAD strengthen of late should last into year-end. We target 1.22 in 4Q, with risks skewed to 1.20. However, in the shorter term, some temporary spikes back to 1.29-1.30 can’t be excluded given the unstable risk environment.
Given Canada’s strong domestic economic performance and high inflation, we expect 50bp hikes by the BoC in July and September. We estimate the BoC’s terminal rate 50bp above the Fed’s.
Loonie strength to extend into 2H22 - 1Loonie strength to extend into 2H22 - 2

AUD/USD
Still looking unattractive

Current spot: 0.6994

We remain of the view that the Australian dollar is the commodity currency with the least attractive outlook for the remainder of the year.
The RBA has surprised with a 50bp rate hike in June, but a) AUD has been quite detached from domestic monetary policy developments and b) markets are pricing in too much tightening (285bp in the next 12 months) considering the inflation picture in Australia is less worrying than in the US or the eurozone.
External risks remain significant, especially from China’s economic slowdown and potential spill-over into the iron ore market. We see a drop below 0.70 in the near-term, and a return to 0.72 only in 4Q22.

https://www.fxmag.com/forex/reviewing-usd-cad-aud-usd-nzd-usd-eur-p...