The Canadian Dollar underperformed alongside the US Dollar in July. Economists at MUFG Bank analyze USD/CAD outlook.

USD/CAD should be trading closer to the 1.3000 level

Our short-term valuation model that incorporates the impact of moves in yield spreads, risk sentiment and energy prices are currently signalling that USD/CAD should be trading closer to the 1.3000 level.

The likelihood of a softer landing in the US has increased recently which poses downside risks for our USD/CAD forecasts in the year ahead.

We are assuming a high risk of recession/sharp slowdown for the US economy that helps lift USD/CAD.