More Weakness for CAD to USD Exchange Rate
A weak economy and falling commodity prices have hammered the Canadian economy, which could spell more trouble for the CAD to USD exchange rate.
At least that’s according to the latest poll by Reuters. In a survey of currency strategists, the Canadian dollar is expected to fall further in 2016. Analysts expect the CAD to USD exchange rate to drop to US$0.76 over the next month, down from the $0.77 level the market was trading at earlier this week. (Source: “Canadian dollar to dip near-term as economy weakens, Fed hikes: Reuters poll,” Reuters, June 2, 2016.)
The somber outlook is just the latest sign of Canada’s slowing economy. Forest fires have hampered oil production in Alberta. But even before the wildfires shuttered operations, economic growth had been far slower than most analysts were expecting.
In response, the Bank of Canada kept interest rates on hold last week. The news sent the loonie plunging, down nearly five percent since reaching a 10-month high at the start of May. Most analysts now expect the central bank to hold policy steady until at least the third quarter of 2017.
With no interest rate hikes on the horizon, the CAD to USD exchange rate has few catalysts that could drive it higher in the near-term. Where the Canadian dollar heads next could be determined more by international events than the country’s economy itself.
Currency strategists will be closely watching the June 23 British referendum. If the U.K. decides to leave the European Union, it could spark a flight into safe haven assets like the U.S. dollar. A possible recession in Europe could dampen commodities demand, putting further pressure on the Canadian dollar.
A strong economy south of the border could also be bearish for the CAD to USD exchange rate. Policy watchers expect the Federal Reserve to hike interest rates later this year, which will increase the attractiveness of holding U.S. dollars. If the central bank begins another rate hike cycle, some fear it could trigger another flight out of weaker currencies like the Canadian dollar.