2For those Canadians who may be reading this, don’t get overjoyed because the Canadian dollar has seemingly been strengthened 12% since mid-January. Instead, hold back on your spending—the loonie will soon fall back 15%.
James Price, a portfolio manager at Richardson GMP Asset Management, told Bloomberg TV that he believes the Canadian dollar to U.S. dollar exchange rate will fall to US$0.65 by the end of this year. (Source: “Will Diverging Monetary Policies Lead to a Weaker Loonie?” Bloomberg, March 16, 2016.)
He said he thinks the CAD to USD exchange rate will depreciate because the U.S. economy is stronger than Canada’s these days and interest rates will rise faster south of the border, attracting currency traders to the greenback. (Source: “Loonie Tops 77 Cents, But Some Analysts Say Worst Is Yet To Come,” The Huffington Post, March 17, 2016.)
“The overall trend here is that monetary policies are still diverging. The U.S. is still growing faster than Canada, and they’re on a path to tighten their monetary policy sooner than we are,” he told his host Pamela Ritchie. (Source: Ibid.)
The CAD to USD exchange rate strengthened after the Federal Open Market Committee (FOMC) maintained interest rates on Wednesday and said it foresees two interest rate hikes this year instead of four. The Fed statement noted that the U.S. economy remains vulnerable to an uncertain global economy.
The CAD advanced to a year-to-date high of US$0.77 on Thursday and fell back one percent to US$0.7652 on Monday. The Canadian dollar is still 12.3% higher than its low of US$0.68.
Price said currency traders were fleeing the U.S. dollar after the FOMC decision, which made the greenback less attractive to traders.
Price notes that the conditions that created a weak Canadian dollar, namely the crude price rout, are still in place.
The U.S. oil benchmark has rallied 38% since it settled at a 52-week low of $29.85 a barrel on January 20. West Texas Intermediate (WTI) for May delivery is currently trading above $40.00 a barrel.
Analysts forecasted back in February that oil prices would hit $47.00 by June, due to a strong summer seasonal pickup in driving demand, easier-than-expected monetary policy, and falling U.S. shale oil production.
But in a note on Friday, analysts warned that with the Saudis “no longer trying to moderate seasonal price swings, lower driving demand coupled with the autumn refinery turnaround” could push WTI prices back down to $39.00 by the end of September. (Source: “Oil futures fall, but muster 5th straight weekly gain,” MarketWatch, March 18, 2016.)
CAD to USD exchange rate traders are eyeing the release of Canada’s annual budget on Tuesday, the first under the new Liberal government.
Justin Trudeau’s team has promised a stimulus package to help the world’s 11th-largest economy. Traders will be watching closely to see how high a deficit is planned in order to pay for this spending package.