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He noted that the near-term prospects for the U.S. dollar to continue its rally have faded somewhat with Jerome Powell being nominated as Fed chair, the House tax reform bill not challenging expectations for fiscal stimulus, and wage growth weakening. Yet J.P. Morgan isn’t all that concerned about the U.S. dollar rolling over given the constructive environment for growth.

“…Trump policy initiatives are producing more noise than impact, and thus more near-term volatility than medium-term trend,” Normand said.

Douglas Porter, chief economist at BMO Capital Markets, believes the case for higher rates is much less compelling in Canada than in the U.S. However, he believes the Canadian rate story will gradually re-emerge in 2018.

“Until then, the Canadian dollar will be partly shackled by this temporary divergence in rate hike prospects as well as by NAFTA uncertainty, which looks to stick around for some time yet,” Porter said.

Interest rate spreads with the U.S. have become unfavourable for the Canadian dollar, largely because of the BoC’s dovish tone. The central bank is now sending the message that the Canadian economy is more sensitive to interest rates, so future rate hikes will need to come slowly.

“That’s a bit like saying it will keep feeding the beast it created after years of ultra-loose policy – overleveraging and housing taking a disproportionate share of the economy – for fear of being bitten,” said Stéfane Marion and Krishen Rangasamy, economists at National Bank Financial.

They have pushed back their forecast for the next Canadian rate hike to early 2018, but still believe strong data will force the BoC to deliver more rate hikes next year than what the market anticipates.

“If we’re right, then expect the Canadian dollar to make a comeback early next year,” the economists said.