More Pain for the Canadian Dollar?
Many people are hopeful for an early spring, but winter seems to have no end where the Canadian dollar is concerned. A Reuters poll shows a majority of analysts expecting further weakness in the CAD to USD exchange rate through 2016. (Source: “Canadian dollar to resume losing streak in months ahead: Reuters poll,” Reuters, February 3, 2016.)
A crash in oil prices started the enormous decline in the Canadian dollar, dragging the currency down more than 16% in 12 months. The loonie reached $0.68 on January 20, its lowest point in more than a dozen years.
But the CAD to USD eventually found some support, landing above $0.72.
The small bounce in the loonie may have given some investors hope, but analysts aren’t all that moved. Energy markets are sagging under reduced demand from China, a bad sign for resource-based economies like Canada’s economy.
A Reuters poll of 45 foreign exchange experts think the oversupply of oil is unlikely to resolve in the short-term. The median estimate predicted the Canadian dollar will fall back to $0.70 one month from now.
The most bearish estimate for the year suggested the loonie could decline a further 10.7% over the next six months. In any case, the major unknown seems to be monetary policy.
A rate cut from the Bank of Canada could completely alter the situation, so expect analysts to be watching that closely. Sovereign debt yields have gone negative in Europe and Japan, suggesting that Canada may follow suit if oil prices crumble further.