Canadian dollar's underperformance to persist

The Canadian dollar rebounded yesterday following the confirmation that Canada’s economy will be exempt from US tariffs on steel and aluminium. It isn’t out of the woods yet, however. NAFTA’s future still hangs in the balance, its fate in the hands of the “America First” champion President Donald Trump. Meanwhile, housing is no longer a support for the domestic economy. In contrast to the consensus, we expect the Bank of Canada to keep interest rates at 1.25% over the next few months and think that the next move in rates is more likely to be a cut. Accordingly, we expect the Canadian dollar to drop back to US$0.74 by year-end.