Canadian Dollar Forecast January 2016

Are you wondering will the Canadian dollar rise in 2016? The US dollar remains strong with further upwards potential to begin 2016, however, more volatility can be expected as the sustained US dollar rally matures. In December of 2015, the Fed increased interest rates. A projected four increases of 25 basis points are expected by the Federal Reserve over 2016. However, if the US economy gets off to a sluggish start, monetary policy tightening may be delayed. The market factors affecting the US dollar and currencies globally in 2016 will continue to be commodity prices, market developments in China, geopolitical tensions in the Middle East, and monetary policy effects on debt markets. Domestically, investors will look towards economic indicators and sustained momentum in US economic growth to support the strong US dollar.

Canadian Economy Forecast 2016

The Canadian dollar closed out 2015 as the worst-performing G-10 currency, the outlook for the Canadian economy forecast is increasingly bleak for 2016. With the Fed increasing interest rates and the Bank of Canada potentially introducing additional economic stimulus in the form of lower interest rates, monetary policy divergence may put further downward pressure on the Canadian dollar. Furthermore, low oil prices and poor domestic economic data continue to impair the Canadian dollar bull case. As a result, the range for the USD/CAD rate sits in the 1.40 range for the near term. Overall, economic data, commodity prices, and divergent monetary policy continue to be the main story for the Canadian dollar.

To start the New Year, Canadian dollar bears can sit comfortably in a continued weak Canadian dollar environment. Analysts remain bearish as the Fed has raised interest rates and the US economy continues to improve, while the Canadian economy struggles, with the Bank of Canada maintaining a dovish stance on monetary policy. Canadian dollar bears should remain aware of any sharp, however unlikely, upward changes in commodity prices, significant improvement in the domestic economy, or change in stance on monetary policy as potential risks that can derail the Canadian dollar bear case.

When Will the Canadian Dollar Go Up?

The tune for Canadian dollar bulls has not changed to start the New Year as the economy fails to find traction. While the Canadian economy was able to experience increased output in Q3 2015 as a result of stronger exports and residential investment, this was not sustained as trade flows weakened coupled with soft commodity prices. Furthermore, with household debt levels increasing and consumer spending being relatively strong in 2015, it is expected that consumer spending will likely play less of a role in the 2016 economic growth story. For the near to medium term future, Canadian dollar bulls will need to keep an eye on any significant improvements in commodity prices and economic data should the Canadian dollar bull case to take a turn for the better.

Knightsbridge Foreign Exchange has based the opinions expressed herein on information generally available to the public. Knightsbridge Foreign Exchange makes no warranty concerning the accuracy of this information and specifically disclaims any liability for trading decisions based on the opinions expressed and information contained herein. Such information and opinions are for general information only and are not intended to present advice with respect to matters reviewed and commented upon.