Loonie headed lower, top forecasters say in departure from consensus
|National Post 06 Apr 2020 at 13:23|
The loonie is headed lower this quarter, at least according to some of the currency market’s top-ranked forecasters, who depart from the consensus view that gains are likely.
Canadian Imperial Bank of Commerce, which according to Bloomberg rankings had the most accurate forecast for the Canadian dollar in the first quarter, sees the loonie falling toward a four-year low in the coming months. The unpredictability of the oil market is going to weigh on the currency, according to Bipan Rai, CIBC’s head of North American foreign-exchange strategy.
Oil prices have plunged amid the coronavirus fallout and the price war between Russia and Saudi Arabia, hitting oil exporters like Canada especially hard. Russian President Vladimir Putin in televised comments Friday told the country’s top oil executives that crude-producing countries should join together to slash output. West Texas Intermediate gained a second day, still leaving it more than 50 per cent lower this year.
Rai sees the U.S. dollar buying $1.45 by the end of June, compared with about $1.4150 now. That would leave it approaching the level of $1.4668 it touched last month — its weakest since early 2016 — amid the market turmoil fuelled by the pandemic.
“When you look at the Canadian dollar right now, it’s primarily a story of oil price pressures,” Rai said. “We still don’t know how bad the impact is going to be in the real economy. But it’s going to be very very deep. We’re still very much beholden to political headlines, choppy headlines.”
The median estimate is for $1.39 at the end of the second quarter, about 2 per cent stronger than current levels, according to a Bloomberg survey of 41 forecasters. But Rabobank NA, which had the most accurate overall currency predictions in the first quarter across major currencies, also expects a weaker loonie, forecasting $1.46 by the end of June.
For Jane Foley, head of currency strategy at Rabobank, it’s a story of U.S. dollar dominance.
The Bloomberg dollar index has surged about 7 per cent this year, fuelled by haven demand and liquidity concerns as the pandemic fuelled market turmoil.
“There has been one very obvious trend over the last month, and that is of dollar strength,” she said. “Quite simply, until we are at a point when the market wants to move back into high-yield, emerging-market currencies in significant amounts, I think the dollar is going to a retain a well-bid tone.”
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