Canadian dollar rally likely to fade before year end

The rally in the Canadian dollar to a 14-month high of US$0.79, from US$0.74 a month ago, is likely to fade before year end. While higher oil prices might allow a temporary lift in the coming months, this will be offset by drag from shifting policy interest rate expectations. While we expect the Bank of Canada to abort its rate hike cycle later this year due to a bursting real estate bubble, we also expect the US Fed to adopt a much more hawkish stance than investors currently anticipate.