Today's economy

What’s next for the Canadian dollar?

By Kevin Press,

Comments (8)

What’s next for the Canadian dollar?The Canadian dollar will hit US98¢ at the end of this year, the result of multiple economic headwinds and tailwinds. That’s according to the April edition of Scotiabank’s Foreign Exchange Outlook, released this week.

“We have all these different offsetting factors that are driving the Canadian dollar,” said Camilla Sutton in an interview with me yesterday. Sutton is chief foreign exchange strategist at Scotiabank and a coauthor of the report. The bank forecasts our dollar will reach parity with the greenback in the second quarter of 2014 and will remain there through the end of the year.

“I’m afraid it looks a little boring,” joked Sutton. The truth is that what’s driving the loonie — up, down and sideways — is a useful reminder of just how vulnerable Canadians are to global economic trends. Four things to watch:

  • Canadian gross domestic product growth is slowing. “We have an improving growth outlook in the U.S., whereas in Canada we’ve had fairly disappointing growth in Q1,” said Sutton. “That divergence has weighed on the Canadian dollar.” Real gross domestic product growth in January came in at just 0.2%. Canada’s weakness is due partly to a softening housing market, which Sutton told me will moderate but not collapse.
  • The U.S. economy is rebounding. On one hand, a strong U.S. economy drives the greenback higher against our loonie. But because the U.S. is our principal trading partner, our economy also benefits from a U.S. turnaround. “Net net it’s positive,” said Sutton.
  • Chinese demand for our commodities is holding firm. “China is expected to grow at over 8%,” Sutton told me. “The setting of commodity prices is very much influenced by China.” Our dollar tends to move in tandem with commodity prices.
  • Global investors continue to seek out AAA-rated currencies. There are just 11 countries left with full AAA-ratings, and Canada is on that list. This will continue to attract currency investors for the foreseeable future.

“What’s most important is relative central bank policy,” Sutton told me. “The Bank of Canada is on hold, so it’s more likely we’ll be watching for shifts in Fed policy.”

Scotiabank is forecasting that the Bank of Canada will put off an increase to its overnight rate until 2015. Meanwhile, the U.S. Federal Reserve is expected to begin winding down its quantitative easing program, which along with the strengthening economy there will boost the greenback’s value.

Expect our central bank to move on its overnight rate before the Fed does, Sutton said.

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c.j luke on

In 2 years the Canadian government could be debt free without printing any money,does this not demand some world respect.Why is it legal for the U.S. to print money at there own free will but for the rest of the public it’s illegal.The true value of the U.S. dollar to the world is around 10 cents, is it not.16 trillion in world debt that can and will never be paid off is actually making the dollar worthless.This support for U.S. government debt is about to end, when you can go to your local credit union or bank and get the same interest rate why take the risk.

    Mike on

    Canada has a massive debt, much like the US. They might eliminate the deficit in 2 years ( not likely ), but they won’t eliminate the debt.

    Marshall on

    We are short on ink thats all!

Jean Savage on

Today is December 4, 2013 and the Canadian dollar is currently worth 0.936 US dollars. I wouldn’t listen to this forecast at all; it’s about as predictive and valid as my daily horoscope. Scotiabank’s “Foreign Exchange Outlook” certainly isn’t something I would ever consider reading in the future.

Jock Dean on

Where is the evidence that “the U.S. economy is rebounding” ?.. Rebounding! ..About a third of the available workforce is unemployed or underemployed and the numbers keep rising. The only thing keeping the U.S afloat is their continued borrowing (printing) of money. They need to keep borrowing to maintain the facade as evidenced by their inability to implement “quantitative easing”.
The so called “rebound” is more like the band continuing to play as the Titanic went down..

Stuart Peters on

Nosediving compared to what? I came to Canada eight years ago and received $2.40 for my UK pound, now I get about $1.60.

Frank on

I think he is wrong, I think the Canadian dollar will take a serious nosedive and be back to where it was 20 years ago

    Tom Brown on

    The question is, a nosedive relative to what? The USD has been on a nosedive for a century…and our CAD is right there with it–what does that tell you?

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