Could the Canadian Dollar Hit $0.59?
The Canadian dollar dipped to a 13-year low Tuesday, closing for the day below US$0.70. But according to one analyst, this could just be the beginning.
David Doyle was among the first to predict the drop in the CAD to USD exchange rate, calling for the Canadian dollar to drop to US$0.70 last year. Now, he sees things getting much worse. On Tuesday, the Macquarie Group analyst predicted the Canadian dollar could fall to US$0.59 by the end of 2016. (Source: “Loonie set for unprecedented plunge to 59 cents U.S., top forecaster warns,” Bloomberg, January 12, 2016.)
“You could imagine the situation is worse today than in the 1990s,” Doyle explained, referring to the last time the loonie saw a prolonged decline. “We’re much more dependent on oil now than we were in the past.” (Source: Ibid.)
The Canadian dollar is showing no signs of bottoming, according to Doyle.
In a bid to stimulate the country’s economy, Canada’s newly elected Liberal government has pledged to run deficits for the foreseeable future. Many analysts also expect the Bank of Canada to support this effort by cutting interest rates later this month. Both measures will put pressure on the loonie.
The decline in the CAD to USD exchange rate will mean more pain for shoppers, who can expect to see price hikes on everything from food to clothing. Manufacturers, however, generally benefit from a weak Canadian dollar. But years a factory closures mean exports are unlikely to power the country’s economy any time soon.
“Manufacturing and non-energy exports have far less ability to propel the economic outlook than they have in the past,” Doyle said. “Many of our oil and oil-related sectors have grown, and a lot of our manufacturing sectors have not grown and remained low.” (Source: Ibid.)
This outlook won’t change anytime soon. Once the Canadian dollar hits a record-low, Doyle concludes, it will likely stay depressed through the end of 2018.