CAD to USD: Canadian Dollar Could Drop to 70 Cents
Several analysts have suggested that the Canadian dollar, now worth just a little over US$0.74, could drop further still, compared to the American “greenback,” in 2017. (Source: “‘Uh O Canada’ Loonie seen sinking as low as 70¢,” The Globe and Mail, November 23, 2016.)
U.S. firm JPMorgan Chase & Co. (NYSE:JPM) and Canada’s own Scotiabank expect the “loonie” (as Canadians like to call their dollar) to fall to a level no higher than US$0.70 or US$0.71 by the first half of 2017. Another major Canadian bank, the Canadian Imperial Bank of Commerce (NYSE:CM), has offered a somewhat more optimistic scenario. It predicts the CAD-to-USD exchange to break the fall at about US$0.72.
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The analysts’ pessimism stems from the rise of indebtedness in Canada. This makes many Canadian consumers unable to stimulate the economy. The other factor is the rising concern of a real estate bubble, or rather, that it might burst in cities like Vancouver and Toronto. The Canadian federal government has considered legislation to cool down the overheating real estate market.
Then there is the problem of oil. Oil prices have been hesitating to sustain attempts to lift prices. The fact is that the Canadian economy—and the Canadian dollar even more so—has become heavily dependent on oil, and natural resources have pushed the CAD-to-USD relationship ever more in favor of the U.S. currency.
The bearish factors pushing for a more bearish CAD-to-USD relationship gets more impetus from the bullish U.S. dollar prospects. Economists expect that President-Elect Donald Trump will pursue policies that favor inflation, especially considering his ambitious infrastructure spending program.
But if that’s not concrete enough, there is a strong likelihood that the U.S. Federal Reserve will raise interest rates, maybe as early as next December. The Bank of Canada, given the persistently slow economic growth rate, cannot afford the luxury of higher interest rates.
It was a much different situation five years ago, when the Canadian dollar had not only achieved parity with the U.S. dollar, but surpassed it. In 2011, for a few days, the CAD-to-USD exchange was US$1.05! If there’s a consolation now, it’s that the record low for the Canadian dollar in 2016 was US$0.685.
