According to economists at Scotiabank, the Canadian Dollar (CAD) demonstrates one of the most robust seasonal patterns among major currencies during this period.
USD typically strengthens in Q1 but loses ground through Q2 and Q3 before recovering
Historical patterns spanning over three decades indicate a typical strengthening of the USD in the first quarter, followed by a decline in the second and third quarters, before experiencing a brief and somewhat erratic recovery in the fourth quarter. This trend closely aligns with the average fluctuations in US (10Y) bond yields throughout the year.
April stands out as the best month of the calendar year for the CAD against the USD, with its strength typically extending into May and June. Since the 1990s, the CAD has demonstrated an average return of just over 1% in April, strengthening 68% of the time.
Supportive trends for the CAD are observed across various asset classes. April is historically one of the strongest months for the S&P 500, boasting an average return of nearly 2%. Additionally, April marks the onset of a three-month surge in crude oil prices, with cumulative monthly gains from April to June exceeding 10%.
The anticipated gains in stocks and commodities are expected to provide support for the CAD in the coming weeks, potentially mitigating losses against the generally robust USD. However, a significant improvement in the CAD’s sentiment would likely necessitate a catalyst that negatively impacts the USD, which may be challenging to envision at present.
