[DanRath]

CAD valuation models highlight the risk of a sharp USD/CAD rally in the near term. Even a rally through 1.15 is not beyond the realms of fair value estimates. USD/CAD, although within fair value ranges, has fallen to the lower end of these ranges, suggesting a bias towards a quick bounce rather than a sharp selloff.

Within the last two months USD/CAD has declined from 1.1725 to 1.0633 before settling into a temporary range of 1.0800 to 1.1100.

Overall, based on the 2009 PPP estimates, [at 1.10] CAD is not dramatically misaligned versus the major currencies” compared to historical periods of extreme valuations when spot deviated more than 20% from PPP. Although this is true from a pure PPP valuation perspective, it does mask the fact that USD/CAD remains undervalued at 1.10.