📝See U.S.-CA Rate Differential Widening to 175Bps: Rabobank

As USD/CAD tariff premiums unwind, we find that USD/CAD is again dominated by the US-CA rate differential. We believe that both the Fed and the BoC are nearing the end of their respective cutting cycles before they both commit to an extended pause, and see the year-end rate differential at 175bp. We expect USD/CAD to climb back to the 1.42- 1.44 range on a 6m-12m view. That said, we are cognisant of the increased risk of USD hedging by foreign holders of US assets and thus we see the risk to our forecasts as skewed to the downside.

We are forecasting one more 25bp cut from the BoC at the June 4 meeting, to bring the policy rate down from 2.75% to 2.50%. We believe that the US-CA rate differential is the strongest driver of USD/CAD movement and see the year-end US-CA differential at 175bp.- Rabobank