CAD to USD: This Is Dismal News for the Canadian Dollar

Dismal News for the Canadian DollarAnalyst: Canadian Dollar to $0.68

Sal Guatiera, senior economist at Bank of Montreal, is warning that the Canadian dollar is set to go lower. Guatiera is forecasting that the loonie could fall to US$0.68 or lower by the summer.

Due to a weakening Canadian economy, Guatieri predicts that the Bank of Canada will intervene with another cut to the interest rate sometime in the spring, which will act as a catalyst to drive the loonie downward. The bank’s target for the overnight rate is currently sitting at 0.50%.

“The Bank of Canada stepped back from reducing policy rates in January, possibly because it feared a speculative run on the currency could destabilize confidence and inflation expectations,” he said. “However, a somewhat steadier currency and expected weak activity in the first half of the year should trigger a final rate cut in the spring. (Source: “BMO warns of stumbling Canadian economy, high unemployment,” The Globe and Mail, February 9, 2016.)

Alberta, Newfoundland, and Labrador will likely remain in a recession for the year, Guatiera said, while Atlantic Canada, British Columbia, and Ontario will see modest to moderate economic growth.

“The Canadian economy remains weak due to sharp reductions in investment and income in the oil-producing regions and further declines in the mining sector,” Guatieri said. (Source: Ibid.)

According to Guatieri, growth will be anemic for the year, increasing just one percent, but it should bounce to 2.1% by 2017, as crude oil prices rebound and the economy benefits from the government’s infrastructure spending plans.

The unemployment rate, which now stands at 7.2%, will continue to hold around that mark as energy companies continue to cut jobs, Guatieri concludes.

The BMO economist’s Canadian dollar forecast for 2016 looks dark.