• Debt crises in Europe and the US have clearly weighed on confidence globally and the harsh fiscal austerity measures of governments in the OECD could produce further headwinds worldwide, benefiting the US dollar in the process. The euro, which has held firm despite a string of weak economic data has downside, particularly as sovereign debt problems, fiscal tightening and a likely looser monetary policy by the ECB eventually catch up to the common currency.
  • Canada, though enjoying relatively healthy domestic fundamentals, is not an island unto itself and its growth will be restrained by a deterioration of the global economy. We have accordingly lowered our Canadian growth forecast for this year and next, prompting us to push our call for the next Bank of Canada rate hike to July 2012. That, and a weaker global outlook somewhat softens our near term outlook for the Canadian dollar.
  • The Chinese yuan is on the ascendancy and is set to remain so in coming years as China attempts to rebalance growth towards its domestic economy. We expect the yuan to continue on a gradual appreciating path, with only a limited impact on Chinese exports.