Canadian dollar's descent not over

The recent pullback in the Canadian dollar owes more to weaker domestic fundamentals rather than volatile commodity prices. With domestic economic conditions likely to remain sluggish through next year and the US Federal Reserve still on course to begin reducing the pace of its own monetary stimulus in the first half of next year, we would expect US interest rate expectations to rise relative to expectations for Canadian interest rates. This is likely to be the key driver of the Canadian currency next year.