Ankita Dudani on American and Canadian Dollars

FX Strategist At Royal Bank of Scotland

Undoubtedly, the data on US economy has been recently very good. We are witnessing some upside surprises from data globally, not only in the US. We consider there is a positive momentum that will continue for a bit longer. We have a fairly bullish outlook for the Dollar in the first half of 2012, but in the second half we anticipate the fiscal troubles of the US to come back into focus which will definitely have a big impact. We have already seen in the Fed's meeting two weeks ago where it was suggested the interest rate should be remained unchanged for even longer, at least through 2014. There is a lot of Monetary Easing expected in order to balance the fiscal targeting that we will see. This will certainly keep pressure on the US Dollar. Our forecast is EUR/USD at 1.35 level by December 2012 which will not be due to positive news about the Euro, but will have to do with the downside of the Dollar. We also expect 1.62 level from the cable towards to the end of the year.

The Canadian Dollar is one of the few currencies that we rely on, therefore, we have a long exposure of the Canadian Dollar against both the US Dollar and the Yen. Canada has huge exports to the US, amounting to nearly 80%. With the Fed ensuring that demand in the US stays supported, they are going to make sure that there is stimulus on their Canadian Dollar. Canada's great advantage is not having a large fiscal baggage that is associated with other developed countries at this point. The other thing that has been working in favour of the Loonie is that Canada is one of the few sovereign countries outside of the Europe that have maintained a triple-A rating together with the Singapore and Australia. In terms of forecasts we think that the Loonie is going to head towards 0.96 by Q3 and will return back to 0.98 by December 2012.