Economic Outlook and Summary
October strayed from its placidity when the Bank of Canada reaffirmed their passive mandate to review inflationary data before proceeding with any major decision. Domestic inflation has been sluggish, contributing to a significant drop in the Loonie throughout October. Other than incoming interest hikes, another major indicator for a potential shock on the USDCAD is NAFTA negaotiations. Current negotiation outlook is looking poorly for both Canada and Mexico.
Recent data suggests that the major Canadian banks are bullish on USD/CAD. Most banks have updated their figures to reflect a larger increase than last month’s predictions.
Oil Prices
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The United States topped its record in oil production, producing approximately 2.133 million barrels per day which accounts for more than 2.5x than it did last year. Crude oil is presently trading at mid $54 and is expected to continue to heighten as cumulative global supply is expected to drop in the long-term due to OPEC oil restrictions.
The Canadian Dollar and Bank of Canada
Employment data this morning was very positive, indicating an increase in over 35,000 jobs in contrast to the previous expected 15,000 by analysts. Wages incurred its largest gain in the last 18 months. Stellar gains could be indicative of a potential contractionary monetary policy within early next fiscal year. Despite these gains, Canada is still in a trade deficit of over $3.18 billion. Decreased confidence in the outlook for the Canadian dollar due to NAFTA and other moderating variables could cause a major shift on how Canada is funding its shortage should foreigners choose to divest. Divesture could result in a domino effect leading to further negative repercussions to the Canadian economy.
The USD and the Federal Reserve
The US labour markets remain robust, with an average of 170,000 jobs created (per month) from January to October. The US economy is expected to grow considerably through the remaining year and early next year. The Fed has implemented a data-dependent path to normalization, providing additional monetary policy flexibility moving forward. Assuming all things remain in their favour, the Feds should be on track to implement an interest hike in December.
NAFTA
Recent discussions indicate Mexico and Canada are not likely to proceed with Trump’s unfavourable terms. Should NAFTA dissolve or resume with unfavourable conditions, all members will incur significant losses as many businesses in North America rely on the transparency and consistency of NAFTA. Minor changes are expected, but major changes are likely to be pyrrhic in nature and unlikely to be accepted by all parties.
FX Forecast Table November 2017
| Bank | 2018 – Quarter 1 (USD/CAD) | 2018 – Quarter 2 (USD/CAD) |
| Scotiabank | 1.28 | 1.27 |
| Royal Bank of Canada | 1.33 | 1.30 |
| Bank of Montreal | 1.24* | 1.23* |
| Canadian Imperial Bank of Commerce | 1.30** | 1.28** |
| Toronto Dominion Bank | 1.24*** | 1.23*** |
| National Bank | 1.25 | 1.26 |
*Figures based on previous month
**Based on October 23, 2017
***Based on October 26, 2017
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