While many anticipate the U.S. dollar to continue to strengthen against foreign currencies, especially with the Federal Reserve targeting higher rates, the Canadian dollar and currency-related exchange traded fund may outperform the greenback.
Many currency watchers anticipate the USD to appreciate against foreign currencies, albeit at a slower pace.
“The move may be more muted than over the past 18 months but the dollar will rise further in 2016—because it can,” according to Vincent Chaigneau, global head of rates and FX strategy at Société Générale, Bloomberg reports. “The U.S. economy is best positioned to withstand a strong currency, which will help contain home-born inflation.”
However, Chaigneau argues that the Canadian Dollar could outpace the King Dollar ahead.
“The Canadian dollar is the only G10 currency we expect to outperform the U.S. dollar in 2016,” Chaigneau said, estimating a USD/CAD at 1.31 by the end of 2016.
Currently, the greenback is sitting at CAD1.3852.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including a 9.1% tilt toward the Canadian dollar, has gained 6.6% year-to-date. The euro, which makes up about a 57.6% weight in UUP, has been the greatest factor in affecting the U.S. dollar ETF’s price movements. [How Long Will The Dollar ETF Bull Market Last?]