Canadian Dollar Forecast 2017 (January)
Many exogenous events impacted the Canadian dollar throughout 2016, leading to large fluctuations in global FX markets. Negotiations at Brexit and future policy from the Trump administration may affect future monetary policy decisions, and resultantly, global exchange rates.
Summary
Many Canadian banks anticipate the USD/CAD currency outlook to continue to increase well into Q2 for 2017 and deflate later in the year. The primary moderating drivers for this prediction include the large current account deficit and its impact on the loonie, contrasting monetary policy between Canada and the United States, and the stagnation of oil prices.
Oil Prices
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The OPEC decision to restrict oil supply in late November has driven oil prices to a high of $57 per barrel mid December, representing a modest increase over the levels experienced throughout 2016. Should OPEC and other global oil suppliers commit to the oil supply restrictions, oil prices will continue to increase and increase the Canadian dollar.
Canadian Outlook and Bank of Canada
The Canadian dollar has begun to stabilize after 3 years of sequential drops. As the USD continues to strengthen broadly, exports continue to be an important factor for the Canadian economic recovery.
Due to rising interest rates in the U.S., it’s difficult to speculate the attractiveness of Canadian financial assets. CAD continues to lack a catalyst in the short term, as contrasting monetary policy between the hawkish Fed and the dovish Bank of Canada limits Canadian dollar upside. The Bank of Canada’s measures of the Consumer Price Index saw a decline over the year, where the inflation rate fell by 1.2% last December.
Should OPEC and other global suppliers commit to the restriction of the supply of oil, this would create more opportunities for the loonie to appreciate in the upcoming months.
U.S. Economy and Federal Reserve
The US dollar has made its fourth consecutive annual increase. To minimize pessimistic outcomes, the Feds have increased the federal interest rates by 0.25% last December and intend to implement 3 more hikes than the anticipated previous 2 in 2017. Further interest hikes could attract more additional foreign investment, leading to further appreciation of the US dollar.
EURO and Great British Pound (GBP)
The European Central Bank extended its asset purchase program to the end of the year, while the Bank of England expressed a willingness to loosen monetary policy to achieve inflation targets.
FX Forecast Table
| Bank | 2017 – Quarter 2 (USD/CAD) | 2017 – Quarter 4 (USD/CAD) |
| Scotiabank | 1.4 | 1.36 |
| Royal Bank of Canada | 1.38 | 1.38 |
| Bank of Montreal | 1.37 | 1.37 |
| Canadian Imperial Bank of Commerce | 1.36 | 1.37 |
| Toronto Dominion Bank | 1.35 | 1.34 |
| National Bank | 1.40 | 1.37 |
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