Canadian Dollar About to Decline, According to David Rosenberg

Canadian DollarThe CAD to USD exchange rate could have more room to fall, according to David Rosenberg. (Source: Financial Post, July 10, 2015.)

In a research note published Thursday, July 9th, the chief economist for Gluskin Sheff warned investors to be cautious on the Loonie. Today, the Canadian dollar trades at 79 cents per U.S. dollar. However, in his report, Rosenberg concluded that trader sentiment could send the CAD/USD exchange rate to as low as $0.69.

“We may be only one-fifth of the way into that overshoot process—that is my major point,” he wrote. Rosenberg actually believes the Loonie is approximately three percent below its fair-value. However, investors’ emotions can often send exchange rates far beyond their true intrinsic value.

Why so bearish? Rosenberg notes interest rates in the U.S. are poised to move higher thanks to the country’s booming economy. Canada, in contrast, is struggling, with central bankers widely expected to cut rates this fall.

“The widening bond yield differential in favor of Treasuries is an obstacle for the Loonie,” said Rosenberg.

Lower commodity prices are another headwind. The Loonie enjoyed appreciation during the rise of oil prices. But a major slowdown in China will likely cause demand for Canada’s raw resources to be dialed back.

As Rosenberg concludes, “Intermittent periods of strength in commodities […] will be trading opportunities to rent (but not own).”

To read more on the exchange rate between the U.S. and Australian dollar, see “AUD to USD: Australian Dollar to Stay Low.”