Loonie likely to remain weak in 2019, observers say
The loonie limped into the New Year and some experts are warning Canadians they’ll have to get used to a weaker dollar after a year that saw almost nothing but bad news for Canada’s currency.
The dollar fell below the 74 cent threshold for the first time since May 2017 in mid-december, after the U.S. Federal Reserve sounded a less-dovish-than-expected note during its latest rate hike announcement. It is now more than eight cents below the high of 81.60 cents to the greenback it reached in January and four below its 2018 average of 77 cents.
Canadians, says Sun Life Global Investments chief investment officer Sadiq Adatia, should get used to a weaker currency in 2019. “I think we see some more downward pressure here,” Adatia said. “It’s going to be a slow grind down.”
Sun Life’s forecast has the loonie pegged at 70 to 75 cents by the end of 2019, with a bias closer to the lower end of that range, he said. Not only is Adatia expecting investors to move toward the U.S. dollar, which would weaken the loonie, he suspects the Canadian economy may not be as strong as it appears. Employment numbers, Adatia said, could drop and there would be no other catalyst to pick up the economy in its wake.
With the Bank of Canada pausing rate hikes in December and the Fed taking a more aggressive tone than expected, the loonie was “destined to sell off,” BMO senior economist Robert Kavcic said. Both central banks are expected to raise rates twice in 2019, nullifying any potential pain to the loonie.
“Then the wild card is what happens with oil prices,” Kavcic said, adding that they’re going to hit a bottom soon. If oil prices bottom out, they’ll become rangebound. So too will the loonie, he said. As a result, Kavcic doesn’t expect much movement on the loonie in 2019.
BMO forecasts have it staying flat at 75 cents through 2020.