Economic Outlook and Summary
The greenback rallies as investors look to it when China and OPEC countries look uncertain. The loonie weakens but continues to remain strong as the price of energy commodities rise. Gas and oil prices rise as well as the global economy increases its consumption of energy while production remains the same.
The USD and Federal Reserve
US broad index increased for the first time in a while because of three major factors with two of them being non-domestic. Firstly, the increase in covid cases in OPEC countries has slowed down economic activity in those countries. Secondly, Evergrande, one of China’s largest property management companies, is unable to pay their loans and has fallen potential bankruptcy. Beijing has announced that they are working with the company to resolve this issue but have yet to reach a deal. Lastly, the Feds have hinted at a new policy as the economy recovers; the Chairman stated that he would need a good economic report before he issues any new policy as he does not want to cause a taper tantrum.
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The Canadian Dollar and Bank of Canada
The CAD weakens slightly, but our economy remains stable. Employment levels in Canada are only 0.8% below their pre-pandemic peak, for comparison the United States is at 3.8% below their pre-pandemic peak. Canada also currently has a 22.1% trade surplus with the United States which has been its highest in 12 years. This surplus is mostly due to the price increase in energy exports. However, there is an issue with this; the price of energy commodities cannot increase without the loonie increasing as well. What this means is that if either the loonie strengthens along with this energy commodity price increase, or the price of energy commodities falls along with the loonie.
Oil Prices
Brent crude oil increased to about $74/b last September from $68/b in August and is up $34/b from last year September. Natural gas also increased from last month; Henry Hub increased to $5.16 MMBtu from $4.07/MMBtu in August and is also higher than the average of the first six months of the y $3.25/MMBtu in the first half of 2021. These increases in prices will lead to the average household expenditure on heating to increase significantly.
Forecast Table
| Bank | 2022-USD/CAD Q1 | 2022-USD/CAD Q2 |
| Scotiabank | 1.26* | 1.24* |
| Bank of Montreal | 1.22* | 1.22* |
| CIBC | 1.28 | 1.29 |
| TD Bank | 1.26 | 1.24 |
| National Bank | 1.22 | 1.20 |
*Forecast based on previous month. Forecast Table is for mid-market rates, and subject to change anytime.
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