The difference in bank forecasts
What’s the difference between 73 cents and 80 cents? New forecasts for what the Canadian dollar will be worth in a year.
There are in-betweens, of course, and much depends on oil prices and the outlook for interest rates.
And whoever happens to become the next president of the United States, a not insignificant factor should it be Donald Trump.
But the gap in the most recent forecasts from Canadian banks is a wide one.
Canadian Imperial Bank of Commerce sees the loonie tumbling to as low as 72 cents (U.S.) in the first quarter of 2017, and then gaining a penny to end the year at about 73 cents.
“It’s been a rough ride for the loonie in October,” CIBC forecasters said in a recent outlook.“The rally in oil prices didn’t translate into strength for the Canadian dollar, while hawkish Fed communications have been gradually pushing the loonie weaker,” they added, referring to the latest pronouncements from the Federal Reserve.
The U.S. central bank is widely expected to raise its benchmark interest rate soon, while the Bank of Canada is seen holding its key overnight rate steady for some time, and possibly even cutting, making the American dollar a more attractive prospect.
Indeed, Bank of Canada Governor Stephen Poloz delivered “the biggest blow” to the loonie when he said policy-makers had considered further stimulus at their last meeting, the CIBC report noted.
That’s the low view.
The high view came from Bank of Nova Scotia, which said this week that it expects the loonie will be worth 77 cents in the first quarter of 2017 and 80 cents by the end of next year.
“We do not expect a significant extension of crude oil gains in the coming 12 months, but prices holding near $50 a barrel will help mitigate the impact of rising U.S. interest rates on the CAD some extent,” Scotiabank strategists said in their outlook, referring to the loonie by its symbol.
“The CAD retains a fairly consistent, positively correlated relationship with crude oil prices in the longer run,” they added.
“Domestic growth trends remain subdued, but we expect the Bank of Canada to remain sidelined until late next year, when we anticipate economic momentum, supported by fiscal policy steps, will be sufficient to trigger a 25-basis-point increase in the overnight rate.”
For an in-between look, Bank of Montreal expects the loonie to trade at about 74 cents early next year, and perk up to 76.5 cents by the end of 2017.
But don’t rule out the Trump factor, particularly given that the polls are so close a week before the U.S. election.
Economists believe that Mr. Trump could be a downer for Canada, largely because of the trade threats he has made. While Mexico has taken the brunt of his complaints, Canada is also a partner in the North America free-trade agreement and, thus, could be sideswiped.
You can see it primarily in the sudden weakness of Mexico’s peso, which had been on the rise before the latest developments related to Hillary Clinton’s e-mail, and when she was seen as a sure thing.