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Investing.com -- The Canadian dollar has been one of the best performers in the G10 over the past month, supported by stronger-than-expected inflation and growth data that led to the Bank of Canada holding rates on Tuesday. Despite this recent strength, ING views the Canadian dollar as unattractive against other G10 currencies.
While USD/CAD may experience periods of downward pressure due to weak US dollar demand, several factors weigh on the loonie’s outlook. The new US metal tariff increases disproportionately impact Canadian exporters, and there are no signs of upcoming high-level trade negotiations between the two countries.
Growth risks in Canada remain heavily tilted to the downside, according to ING. The financial services firm believes the Bank of Canada will need to respond to these challenges, possibly by cutting interest rates as early as July.
Markets are currently pricing in only 8 basis points for a July rate cut and 15 basis points for September. ING sees potential for a dovish shift in the Canadian dollar curve that could pressure the currency further.
When combined with risks from potential deterioration in US sentiment, these factors make the Canadian dollar one of ING’s least favorite currencies in the G10 at present. The loonie’s recent strength may prove temporary given these underlying challenges.
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