How Far Will the Canadian Dollar Drop?
If you are American, now may be the time to start planning a trip to Canada, as multiple forecasters are calling for a roughly five-cent decline in the value of the Canadian dollar (known as the “Loonie”) in 2017.
On the other hand, if you’re Canadian and planning any big holiday shopping trips to the United States, you might want to get down there quick, before the Loonie drops even further.
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With the American economy seemingly poised for a rally, interest rates almost certain to be raised by the U.S. Federal Reserve, and a still-flagging energy sector, the Canadian dollar is projecting low into next year. (Source: “Canadian dollar may go as low as 70 cents US in 2017, experts say,” CBC, November 24, 2016.)
The Canadian dollar hasn’t had the best run since the election of Donald Trump. The Loonie has fallen about 0.6 of a cent since Trump’s victory.
Scotiabank (otherwise known as Bank of Nova Scotia (NYSE:BNS, TSE:BNS)) said it sees the Loonie dipping to $0.71 against the U.S. dollar in the second quarter of next year before returning to its current level of US$0.74 by the end of the year.
Most major Canadian banks are expecting this trend to carry forward into 2017. Canadian Imperial Bank of Commerce (NYSE:CM, TSE:CM) (also known as CIBC) has the Loonie falling to about US$0.72 in Q1, followed by a one-cent recovery before the year’s end.
JPMorgan Chase & Co. (NYSE:JPM) has the Canadian dollar bottoming at US$0.70 next year, and then hovering around that number for the second half of 2017.
Desjardins Group economists view the presidency of Trump as a major influence on the Canadian dollar. “Everything seems to be in place for a long climb by the greenback,” said Desjardins in a press release. “The U.S. economy’s acceleration and monetary policy divergence will be its main support.”
While some analysts believe that Canada’s current interest rates will remain unchanged moving forward, there is a concern that a missed forecast on growth could prompt a change.
“While our own forecast sees [Bank of Canada governor Stephen] Poloz eschewing an ease, it would take only a small downside miss to our growth forecast … to prompt such a cut,” CIBC told the CBC. “Any increase in concerns over Trump protectionism versus Canada would also be reason enough for an ease.” (Source: Ibid.)
Of course, while a low-end Loonie could hurt consumers travelling and businesses working in the United States, the weakened Canadian dollar could draw in investors and help spur the economy, making the flagging Loonie by no means an out-and-out tragedy. But you might want to take advantage of those Black Friday/Cyber Monday deals this year versus next.
