The Canadian dollar closed 2020 near a three-year high versus the US dollar. Drivers of medium-term strength remain in place but analysts at Credit Suisse prefer to sell USD/CAD rallies for now.

Key quotes

“Over the next three months, we continue to see potential for USD/CAD to move towards our 1.2550 target, as the fundamental drivers of strength remain in place. High fiscal support to the growth outlook from the Trudeau administration. Rising housing prices suggest low potential for dovish repricing of BoC expectations. Proactive carbon tax initiative in Q4 2020 reduces the potential for long-term squabbles over environmental matters with the incoming US administration. High covid vaccine procurement numbers put Canada at an advantage vs other G10.” 

“The tactical outlook is not very attractive, due to the recent strength in the Canadian oil sector is the product of pipeline construction progress, and the stance on key projects of incoming US administration is yet unknown. COVID-19 infection surge in December drives risk of dovish policy surprise from BoC at upcoming 20 January meeting. This leaves us for the time being more willing to sell rallies in USD/CAD to 1.2900, than to engage immediately with USD/CAD downside.”