Undervalued loonie expected to gain traction against U.S. dollar
Scotiabank projects modest increase with ‘fundamentals pulling through’
TORONTO The Canadian dollar will gain ground against its U.S. counterpart over the coming year, supported by strengthening of the domestic economy and a narrower gap between Canadian and U.S. interest rates, a Reuters poll predicted.
Friday’s poll of nearly 50 currency analysts showed they expect the Canadian dollar to strengthen one per cent to US75.76 cents, in one month from about US75.18 cents on Thursday. The loonie is then expected to gain further to US76.58 cents in 12 months, which is about the same level as the median projection in September’s survey.
Scotiabank is pinning its forecast “on the fundamentals pulling through and from that perspective we do expect a modest appreciation in the CAD over the medium term,” said Shaun Osborne, chief currency strategist at the bank. “We think that the CAD is undervalued at these levels.”
The loonie is trading at less than its potential valuation because of an uncertain outlook for global trade, Osborne said.
Canada is more dependent than some other countries, such as the United States, on trade. At $1.5 trillion, trade of goods and services, including oil and motor vehicles, accounted for 66 per cent of Canada’s economy in 2018, according to government data.
Still, the Canadian dollar and the Japanese yen have been the only G10 currencies to gain ground this year against the U.S. dollar, with the loonie up more than two per cent.
Canada’s economy expanded at an annualized rate of 3.7 per cent in the second quarter, while the economy has been adding jobs this year at a robust pace and inflation is close to the Bank of Canada’s target of two per cent.