Canadian Dollar Forecast 2016
It’s an open secret that the Canadian dollar was the best short play of 2015. The CAD to USD seemed caught in a never-ending downward spiral, but it has since found some support in the last month. Now investors want to know if the support is real. Can the Canadian dollar sustain a recovery?
For the most part, commodities are going to decide the fate of the Canadian dollar. If we see a continued surplus in oil and gas, it’ll mean a depressed CAD to USD. That’s just the way it goes.
Canada’s economy is overly dependent on commodities and it’s hurting it now just as much as it helped it a few years ago. And it really doesn’t look like we’re going to see oil production slow. There was a tentative deal between Russia and Saudi Arabia to scale back output and push up prices, but the deal is meaningless without Iran. Don’t expect oil prices to surge anytime soon.
So we know that a resurgence in the Canadian dollar is unlikely. Its high correlation with the oil and gas sector tells us that much, but what are the chances of further losses in the CAD to USD? Is it possible that the recent support is just a head fake?
I think it is. The oil price slump did more than just weaken the Canadian economy—it made a crack in the housing market. Canada has one of the biggest housing bubbles in the world, in case you hadn’t heard. Toronto and Vancouver are the hotspots of real estate speculation.
Everyone has been wondering how this housing market is going to end. After all, Canada’s housing market didn’t collapse during the financial crisis. It weathered the recession fairly well, then went on a monster growth streak. After a while, speculators and homeowners felt invulnerable to losses.
But here at Profit Confidential, we are contrarian investors. I’m often skeptical of “conventional” wisdom, especially when it’s considered a “fool proof” investment. I knew it was only a matter of time until something brought the Canadian housing market back to Earth.
Now I know what that something is. The oil price slump devastated home prices in Alberta, Canada’s oil-producing province. It left a crack in the housing market that could spread across the country until the entire housing bubble comes crashing down. (Source: “Alberta housing market braces for most painful year since crisis,” The Globe and Mail, January 13, 2016.)
If there’s a nightmare scenario for the Canadian dollar, that is surely it.