The loonie’s worst collapse against the U.S. dollar in the history may be within the rearview mirror as a most of economists now see the currency staying at current levels or higher by the end of the year.
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Canada’s dollar has been one of the world’s worst performing currencies, like a crash in oil prices and rate of interest cuts by the Bank of Canada caused it to lose 16 per cent of its value against the greenback this past year alone – its biggest annual loss ever.
The past 3 years have experienced the loonie fall faster against its counterpart than at any other reason for its 45-year history like a free-floating currency, a collapse that brought it from parity using the U.S. dollar to below 69 cents recently.
“With Canadian monetary policy going for a backseat to fiscal stimulus, Fed rate hikes being delayed until later around and oil prices appearing to have bottomed out we’ve strengthened our near-term forecast for the Canadian dollar,” said economists at CIBC World Markets in their latest foreign exchange outlook released Tuesday. “Indeed, it’s now likely the loonie has witnessed the worst from the depreciation, even if it has one slight dip ahead.”
One Canadian dollar currently buys 72.6 U.S. cents, based on Tuesday’s exchange rate. That is a slight improvement in the 13-year low of 68.64 cents seen recently when the American dollar hit its highest level from the loonie in 13 years. That spike occurred on the back of the further capitulation in oil prices, which raised expectations the Bank of Canada would have to loosen monetary policy further.
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CIBC is the latest in a host of economists which have started to revise their outlooks for that loonie higher. The bank predicts that by the second quarter of 2017, the Canadian dollar will strengthen to 75.18 cents against the greenback, bringing it to the amount seen after last year.
Earlier this month, another bottom call is made by Shaun Osborne, chief currency strategist at Scotia. He said that while some of the January lows could be retested within the coming year, the worst of the loonie’s slide is behind it (the loonie has gone on to rally five percent since that time).
Even more bearish economists around the loonie have been repricing their outlook for that currency. Last week, Charles St-Arnaud, economist at Nomura Securities, asserted he now sees the CAD/USD rate ending the year at 68.97 cents, from his earlier call of 68.03 cents. He expects that to increase to 74.01 cents after 2017.
Another Bank of Canada rate cut could slowly move the loonie downward again before an upward bounce takes hold within the latter half of the entire year, say economists. The market happens to be pricing inside a a lot more than Half chance the Bank of Canada will carry out one more rate cut at its April meeting. The overnight rates are now 0.50 per cent.
Pressure around the loonie from any rate cut is expected to be offset through the announcement of stimulus spending through the authorities the following month. Prime Minister Justin Trudeau will table his government’s budget on March 22, that is likely to include billions for new infrastructure projects which are likely to increase economic growth in the coming years.
“The use of deficit spending by the Liberal government to stimulate the economy implies that pressure around the currency from potential monetary easing has been significantly reduced,” said CIBC in the note.
But don’t expect coming back to parity in the near future. Economists say instead it is likely the loonie will stay near current levels for the next couple of years at least, which CIBC says can help keep Canada’s non-energy exports competitive around the global stage.
jshmuel@nationalpost.com
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