Economists at ING analyze USD/CAD outlook.
Loonie affected by the US as much as by Canada
CAD remains quite tied to the domestic US story, and therefore to the USD itself. Should we see a fully-fledged risk-on rally on the back of a clear softening in US data, expect CAD underperformance compared to other pro-cyclicals.
A more conservative scenario, where markets have to ‘hold their horses’ on the USD decline/Fed peak story for a bit longer can make CAD stand out.
In all cases, the attractive volatility-adjusted carry means USD/CAD can hit 1.25-1.27 by mid-2024.
Source: https://www.fxstreet.com/news/usd-cad-can-hit-125-127-by-mid-2024-ing-202307180706