EFTA01148065.pdf

From:Tazia Smith To: [email protected] Cc: Paul Morris --, Vinit Sathe < , Nay Gu to „ Vahe Stepanian Subject: USDCAD update, meaningful commentary post BOC... [I] Date: Wed, 22 Jan 2014 17:19:50 +0000 Inline-Images: unnamed; unnamed(I) Classification: For internal use only Jeffrey - You've likely seen USDCAD moving your way today on the back of the BOC meeting. DB FX Strategist, Alan Ruskin notes, "Today the BOC has told the market in multiple ways that CAD weakness is desirable and the market should keep pushing on an open door." Comment below. FYI only. Best Regards, Tazia Alpha Alert — BOC open door policy to CAD weakness: 5 quotes By Alan Ruskin This material is provided for historical reference and should not be relied upon as the current views of the author and may contain commentary pertaining to instruments that Deutsche Bank is now restricted from acting in. (close) Today the BOC has told the market in multiple ways that CAD weakness is desirable and the market should keep pushing on an open door. The HOC has gone out of its way to make clear that neither CAD weakness or slightly stronger 2014 US/Canadian growth has offset downside risks to inflation. The comment that " Although the fundamental drivers of growth and future inflation appear to be strengthening, inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance" is the most important element in the statement. In addition an array of comments related to the currency all appear welcoming of currency weakness as evident in the statement that " Stronger U.S. demand, as well as the recent depreciation of the Canadian dollar, should help to boost exports and, in turn, business confidence and investment." Here are 5 clips from the policy report all consistent with the Central Bank effectively telling the market to keep pushing on an open door to a weaker CAD: EFTA01148065 1. "The Canadian dollar has recently fallen to around 91 cents U.S., compared with the 97 cents U.S. assumed in the October Report (Chart 8). This depreciation likely reflects the improved growth prospects in the United States, as well as reduced safe-haven effects that had pushed the Canadian dollar higher in the aftermath of the global financial crisis. By convention, the Canadian dollar is assumed to remain at or near its current level over the projection horizon. Also "despite depreciating in recent months, the Canadian dollar remains strong and will continue to pose competitiveness challenges for Canada's non-commodity exports" 2. In small type also: " the Bank estimates that commodity prices account for roughly half of the appreciation of the Canadian dollar since 2002 the remainder of the appreciation is in line with the broad-based depreciation of the US dollar" 3. "Canadian firms should also be more inclined to invest, since the lower value of the Canadian dollar is boosting both activity and profitability in the export sector" 4. "The depreciation of the Canadian dollar in the past year is also expected to exert some upward pressure on inflation. The lower profile for inflation relative to October mainly reflects the Bank's assessment that the effects of heightened competition on inflation will be more widespread and persistent than previously assumed." 5. "While prospects for the global economy have improved and the Canadian dollar has depreciated in the past year, the base-case projection is conservative in assuming that only a small portion of this wedge will dissipate over the next two years. However, with the performance of exports still disappointing, there is a risk that the growth rate of exports will continue to fall below that of foreign activity in coming years. This could reflect more intense competitiveness pressures or an inability to respond rapidly to increases in demand, given the reduced production capacity in some export sectors." Alan Ruskin (212-250-8646) Alan Ruskin Managing Director FX Strategy 212-250-8646 Tazia Smith Director i Key Client Partners - US Deutsche Bank Securities Inc Deutsche Asset 8 Wealth Management 345 Pot Avenue, 26th Floor New York, NY 10154 Tel. +1 (212)454-2889 Fax +1 (646)257-3131 Mobile +1 917 327-4107 Email Pan-io-pcfr Pgeferein EFTA01148066 This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01148067