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Luc de la Durantaye, chief investment officer at CIBC Asset Management.

We can start with the U.S. dollar, as it is often the anchor of currency and foreign exchange. In terms of the U.S. dollar, first principle: it is expensive from a valuation perspective relative to most of our currency universe. That in itself, further appreciation is usually limited once you start with an overvalued currency. One way we can sort of detect that is that the U.S. runs a current account deficit, which is often the sign of an expensive currency, whereas the U.S. exports less than they import. Part of that is because of an expensive currency. This is what one of the elements that plagues the U.S. dollar. The U.S. economy runs a large fiscal deficit, which can weigh negatively on the currency. You can think of it this way: the U.S. will have, eventually, to reign in the fiscal deficit. That has growth implications: slower growth because of the slower fiscal impulse.

That has a direct implication on the future monetary policy where the Fed will have to compensate and potentially stay longer on the sideline, or even ease monetary policy, and therefore ease the interest rate differential of the U.S. economy versus the rest of the world. And so, the U.S. dollar had essentially been supported over the last year or two, and the main element supporting that was the renormalization, or the normalization, of the Federal Reserve’s monetary policy relative to the rest of the world. The U.S. had become a high-paying currency, at least in the G10 group, but that has been put on pause as we all know, and therefore it’s relieving a little bit some of the support on the U.S. dollar. So all in all, we see a peaking U.S. dollar. We don’t see a lot of potential further strength in the U.S. dollar. And if anything, at least against some of the emerging markets, maybe flat against the G10 currencies, but a potential decline or some weakness relative to the emerging market currencies.

As far as the euro is concerned, while it’s often called the anti-dollar, given that it’s the second largest currency being traded, then when the U.S. dollar weakens, often the euro strengthens, just essentially because the global currency managers and sovereign wealth funds rebalance their portfolios away from the dollar, and some of that finds itself into the euro. However, the euro continues to be plagued by—there’s a longer term and more cyclical aspect. The longer-term aspect that’s weighing on the euro is its structural weakness. The eurozone remains an incomplete project, if you will, and it creates political instability. We’ve seen that in Italy.

We also see Brexit indirectly weighing on the eurozone. It’s also plagued by very weak economic activity: weak growth from a cyclical perspective, and weak inflation. The ECB has not met its inflation target for a number of years now. That forces the European Central Bank to remain more dovish than many central banks, and you have negative interest rates. That doesn’t help the euro. So, we have limited upside to the euro, and that’s essentially linked to our U.S. dollar view where we see some weakness in the U.S. dollar, but most of the gains will not come from the euro. So, it’s currently trading at 112. If we get to 114, at least in the next six to 12 months, that will be the highest target that we would see.

Closer to home in the Canadian dollar versus the U.S., Canada remains plagued with a current account deficit, and that’s weighing on the Canadian dollar. And particularly when you look at the non-oil deficit, that has still not improved. So, even though the Canadian dollar is slightly undervalued versus the U.S. dollar, it hasn’t helped our external account improve. Until we see a certain improvement in our net export, particularly excluding oil, then we can’t afford, in a way, to have a strengthening Canadian dollar. From that perspective, we remain somewhat of a trading range for the Canadian dollar.

Why the trading range? Well, compared to the U.S., which is also going to be weak, the Canadian dollar can hold its value. But in times of weakness in the global economy, the Canadian dollar cannot afford to appreciate and must continue to remain relatively weak to help turn around our current account deficits.

The area that we see some attractiveness is in the emerging market complex, where there are a number of high-quality stories where you have undervalued currencies with high interest rates and stronger economic activity. So there’s certain areas in Asia— Indonesia, India—that are seeing undervalued currencies, high interest rates, that hold some promises for investors to provide some attractive return in the currency market.

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