Economic Outlook and Summary
The announcement and implementation of the interest rate hike in early July caused the loonie to appreciate over 4 cents. The Canadian dollar has since declined from July 24th highs, where it peaked at over 81 cents, slowly depreciating and sitting at around mid 1.25-1.26.
Most banks have adjusted their forecast on the USD/CAD to rise. Transitioning into Q4 2017 the range intervals among the banks range from 1.28-1.30 for Q4 2017 and 1.27- 1.33 for Q1 2018.
Oil Prices
Reports from the investment banking industry suggests that oil prices are likely to see a downward correction this quarter. The combination of seasonal increased consumption, global oil restrictions and political events were paramount in declining oil prices the previous months. As these variables diminish in the ending quarter, the markets will adjust itself. Despite this, Brent prices may move up as high as $54 by the final quarter assuming global suppliers such as OPEC and Venezuela remain firm in their stance. As shale producers hedge against the market and Iran continues to overproduce the commodity, the seasonal quantity demand would eventually decrease adding truth to the aforementioned prediction.
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The Canadian Dollar and Bank of Canada
Despite soft oil prices in July, the Canadian dollar continued to climb. An interest hike in October is looking likely, which could cause a temporary spike to a loonie. The housing market has slowed down due to concerns of the housing policy set to deter foreign investment in domestic real estate. Meanwhile, auto sales have continued to accelerate. The likelihood of the interest hike to have any substantial impact on these markets in the short-term is questionable. Only time will tell if the long-term consequence would be meaningful.
US Dollar
Investors are still skeptical of a third interest hike in the incoming fiscal year due to a shrinking balance sheet, and below target inflation levels. The Fed Chair stated that the Federal Open Market Committee had intended to follow through with gradual interest hikes within the years. An official announcement of an interest hike would be plausible should it occur after the reduction in the balance sheet. Should U.S. GDP incur growth within the next couple years due to a fiscal stimulus or other policy, this would increase the prospects of an interest hike.
NAFTA
Negotiations for NAFTA in August could prove favourable for the US, causing the greenback to become increasingly bullish. Further protectionist policies could potentially reduce the US Balance Sheet in the short-run, making it even making it even more dubious for a potential third hike by the feds in 2017.
FX Forecast Table
| Bank | 2017 – Quarter 4 (USD/CAD) | 2018 – Quarter 1 (USD/CAD) |
| Scotiabank | 1.28 | 1.28 |
| Royal Bank of Canada | 1.30 | 1.31 |
| Bank of Montreal | 1.30 | 1.30 |
| Canadian Imperial Bank of Commerce | 1.30 | 1.33 |
| Toronto Dominion Bank | 1.28 | 1.27 |
| National Bank | 1.29 | 1.30 |
FX Forecast Table
| Bank | 2017 – Quarter 4 (USD/CAD) | 2018 – Quarter 1 (USD/CAD) |
| Scotiabank | 1.28 | 1.28 |
| Royal Bank of Canada | 1.30 | 1.31 |
| Bank of Montreal | 1.32 | 1.31 |
| Canadian Imperial Bank of Commerce | 1.31 | 1.32 |
| Toronto Dominion Bank | 1.30 | 1.30 |
| National Bank | 1.30 | 1.27 |
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