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Briefing highlights

  • Loonie seen sliding as low as 70¢
  • Britain cuts economic growth forecasts

Loonie to slide again

Fresh forecasts suggest the Canadian dollar could slide to as low as 70 cents (U.S.) next year.

And don’t be swayed by the fact that that’s the lower end of the projections among three major banks this week. The upper end is only a couple of pennies higher.

Here’s the latest:

JPMorgan Chase sees the loonie tumbling to just shy of the 70-cent mark by mid-2017, then trading between that level and 71 cents through the second half of the year.

Bank of Nova Scotia now forecasts a 71-cent loonie by mid-2017, and Canadian Imperial Bank of Commerce expects the currency to be worth just below 72 cents in the first quarter of next year.

“There’s only so much economic juice to be squeezed out of indebted consumers, and government policy is starting to lean against a further housing boom,” CIBC economists said in their latest outlook.

“With oil prices still too tepid, a weaker Canadian dollar, encouraged by dovish monetary policy, has been seen as key to shifting growth towards non-energy exports and related capital spending,” they added in a section of the report titled Uh O Canada.

“Disappointments on that front have only exacerbated that trend to a softer loonie.”

There are several reasons for the loonie’s tumble, although the currency picked up a bit of steam this week as hopes of an OPEC production cap buoyed oil prices.

THE GLOBE AND MAIL » SOURCE: QUANDL

The Canadian dollar has moved with crude prices, but has also been held down by the fact that the Federal Reserve is expected to hike its benchmark rate next month while the Bank of Canada does nothing, perhaps for a year or so, making the loonie less attractive.

“We have adjusted the CAD profile to reflect a larger and longer decline against the USD next year,” said Scotiabank forecasters, referring to the Canadian and U.S. dollars by their symbols.

“This is due to our expectation of broader strengthening in the USD, ongoing growth challenges at home, and the absence of any rate increases from the Bank of Canada until 2018.”

That strength in the U.S. dollar has also been a factor, of course, notably in the wake of Donald Trump’s election victory.

“Donald Trump’s election as president has boosted the dollar more than any previous vote has, given the myriad uncertainties his administration brings to fiscal, monetary and trade policy,” said John Normand of JPMorgan Chase.

Scotiabank, by the way, sees the loonie picking up to 74 cents by the end of next year, while CIBC sees it ending 2017 at 73 cents.

Observers are counting on a weaker loonie to help boost Canadian exports. And there are some interesting issues given the uncertainty now surrounding our exports in the Trump era.

“Canadian exporters hoping to catch a break from the weaker loonie better take note,” said BMO Nesbitt Burns senior economist Sal Guatieri.

“Yes, the currency is down 1 per cent against the greenback post-election,” he added.

“But it’s also up almost 4 per cent against a basket of other currencies, i.e., against countries that buy a quarter of our exports. Consequently, the loonie’s trade-weighted value has basically stood still since the election, as in the past year. Exporters will need to find other ways to level the competitive playing field (i.e., productivity gains, innovation, corporate tax cuts, lower power costs, lower wages, etc.).”

Britain cuts forecasts

Britain’s new post-Brexit government has cut its forecasts for economic growth, and its return to a balanced budget.

In his economic and fiscal outlook, Chancellor of the Exchequer Philip Hammond outlined the post-Brexit scenario, one that calls for a much weaker showing.

In the Office for Budget Responsibility report, economic growth this year is now expected to be just 1.4 per cent, compared to earlier projections of 2.2 per cent.

“A weaker outlook for investment and therefore productivity growth is the main cause,” according to the document.

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