What’s ahead for dollar/Canada?

From early September 2006, a clear uptrend channel formed in dollar/Canada, with the pair moving from $1.10 to $1.1591 in late December. Most market watchers expect that trend to continue into the New Year. Deteriorating economic conditions within Canada are seen as a major driver for further Canadian dollar weakness, and analysts cite U.S. conditions as a key factor: Weaker-than-expected economic conditions in the U.S. could weigh even more on the Canadian outlook.

Basile’s global FX team projects a move toward $1.20 over the next 12 months. Lehman Brothers’ Shin says his firm targets a move toward $1.25 by year-end 2007.

Buskas also sees room for depreciation in the Canadian currency ahead, with a move to $1.18/1.20. She saw fair value around the $1.23/1.25 level, which is “more in line with historical averages.”