Citi Sees USD/CAD Target at 1.35 as Rate Outlook Shifts

The US Dollar vs Canadian Dollar (USD/CAD) exchange rate has edged higher despite Citi's recommendation to sell the pair. The bank expects softer US data and a more hawkish stance from the Bank of Canada to narrow the interest-rate differential in favor of the Canadian dollar.

Citi targets 1.35 as the rate outlook shifts toward the Canadian dollar, with the main pressure expected to come from the US dollar due to incoming economic data that may fail to justify a September Federal Reserve rate hike.

US inflation data on September 11 will be the key catalyst for this shift, and Citi expects annual inflation to slow to 2.3-2.4%, weakening the Fed's hawkish premium.