LOONIE LOOKS READY TO FLOAT OUT THE YEAR, ENDING ITS LONG DROP AGAINST THE GREENBACK.
Currently buys US72 cents, up from 13-year low
The loonie’s worst collapse against the U. S. dollar in its history may be in the rearview mirror as a majority of economists now see the currency staying at current levels or higher by the end of the year.
Canada’s dollar has been one of the world’s worst performing currencies, as a crash in oil prices and interest rate cuts by the Bank of Canada caused it to lose 16 per cent of its value against the greenback last year alone — its biggest annual loss ever.
The past three years have seen the loonie fall faster against its counterpart than at any other point in its 45- year history as a freefloating currency, a collapse that brought it from parity with the U. S. dollar to below 69 cents last month.
“With Canadian monetary policy taking a back seat to fiscal stimulus, Fed rate hikes being delayed until later in the year and oil prices appearing to have bottomed out we’ve strengthened our nearterm forecast for the Canadian dollar,” said economists at CIBC World Markets in their latest foreign exchange outlook released Tuesday. “Indeed, it’s now likely that the loonie has seen the worst of 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 i mprovement f r om t he 13- year low of 68.64 cents seen last month when the American dollar hit its highest level against the loonie in 13 years. That spike occurred on the back of a further capitulation in oil prices, which raised expectations the Bank of Canada would have to loosen monetary policy further.
CIBC is the latest in a host of economists which have begun to revise their outlooks f or t he l oonie. The bank predicts that by the second quarter of 2017, the Canadian dollar will strengthen to 75.18 cents against t he greenback, bringing it back to the level seen at the end of last year.
Earlier this month, another bottom call was made by Shaun Osborne, chief currency strategist at Scotia. He said that while some of the January lows could be retested in the coming year, the worst of the loonie’s slide is behind it ( the loonie has gone on to rally five per cent since then).
Even more bearish economists on the loonie have been repricing their outlook for the currency. Last week, Charles St- Arnaud, economist at Nomura Securities, said that 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 rise to 74.01 cents by the end of 2017.
Another Bank of Canada rate cut could move the loonie downward again before an upward bounce takes hold in the latter half of the year, say economists. The market is currently pricing in a more than 50 per cent chance that the Bank of Canada will carry out one more rate cut at its April meeting. The overnight rate is now 0.50 per cent.
Pressure on the loonie from any rate cut is expected to be offset by the announcement of stimulus spending by the federal government next month. Prime Minister Justin Trudeau will table his government’s budget on March 22, which is expected to include billions for new infrastructure projects that are expected to ramp up economic growth in the coming years.
“The use of deficit spending by the Liberal government to stimulate the economy means that the pressure on the currency from potential monetary easing has been significantly reduced,” said CIBC in its note.
But don’t expect a return to parity anytime soon. Economists say instead it is likely the loonie will remain near current levels for the next couple of years at least, which CIBC says will help keep Canada’s non- energy exports competitive on the global stage.