Canada and Mexico will benefit from a stronger US economy

forextv.com


Quotes from Scotiabank:

-Canada and Mexico will benefit from a stronger US economy due to well-entrenched structural production and trade interdependence. Nevertheless, repatriation forces coupled with monetary normalization trends will lead to minor adjustments in both the Canadian dollar (CAD) and Mexican peso (MXN) versus the USD in the year ahead.

-The CAD is expected to come under pressure, particularly in the first six months of the year. The Canadian economy will underperform the US while the Bank of Canada maintains its dovish stance as Canada enters 2014 with inflation levels below the control band of 1 to 3%. Complicating the CAD's outlook is how US domestic oil production combined with ongoing pipeline uncertainty will impact Canadian produced oil.

-As for the MXN, improved US growth prospects are both a positive and negative factor given the potential for increased trade-related activity (positive) and the potential for capital outflows as the US government yield curve normalizes (negative). It is worth noting the relatively better performance of the MXN versus the Brazilian real (BRL).

-As for the rest of the core currencies in the Americas, attention will be placed on Brazil due to weak growth in the midst of two important events which will guide intervention and policy action:presidential elections in October and the FIFA World Cup in June/July. We forecast an end-year rate of USDBRL 2.50.