Worst of loonie’s depreciation may be over, economists say

The loonie’s worst collapse from the U.S. dollar in its history might be in the rearview mirror as a most of economists now begin to see the currency staying at current levels or more after the year.

'This market is really a volatile business': May be the recent TSX rally the calm before the storm?

Investors in Canadian equities have spent the very first seven weeks of the season on the jolting roller-coaster ride

Read more

Canada’s dollar continues to be one of the world’s worst performing currencies, like a crash in oil prices and rate of interest cuts by the Bank of Canada caused it to get rid of 16 percent of its value against the greenback this past year alone – its biggest annual loss ever. 

The past three years have experienced the loonie fall faster against its counterpart than at any other point in its 45-year history like a free-floating currency, a collapse that brought it from parity with the U.S. dollar to below 69 cents last month.

“With Canadian monetary policy taking a backseat to fiscal stimulus, Fed rate hikes being delayed until later in the year and oil prices appearing to have bottomed out we’ve strengthened our near-term forecast for that Canadian dollar,” said economists at CIBC World Markets in their latest foreign exchange outlook released Tuesday. “Indeed, it is likely the loonie has seen the worst from the depreciation, even when it has one slight dip ahead.”

One Canadian dollar currently buys 72.6 U.S. cents, according to Tuesday’s exchange rate. That is a slight improvement in the 13-year low of 68.64 cents seen recently once the American dollar hit its highest level against the loonie in 13 years. That spike occurred around the back of the further capitulation in oil prices, which raised expectations the Bank of Canada would have to loosen monetary policy further.

Related

Loonie set for unprecedented plunge to 59 cents U.S., top forecaster warnsHow Canadian snowbirds are feeling the pinch of the falling loonie: ‘There are no deals anymore’

CIBC is the latest in a host of economists that have started to revise their outlooks for the loonie higher. The bank predicts that through the second quarter of 2017, the Canadian dollar will strengthen to 75.18 cents from the greenback, bringing it to the level seen after this past year.

Earlier this month, another bottom call was made by Shaun Osborne, chief currency strategist at Scotia. He explained  that  while some of the January lows might be retested within the coming year, the worst from the loonie’s slide is behind it (the loonie went on to rally five percent since then).



Even more bearish economists on the loonie have been repricing their outlook for that currency. A week ago, Charles St-Arnaud, economist at Nomura Securities, said that he now sees the CAD/USD rate ending the year at 68.97 cents, from his earlier call of 68.03 cents. He expects that to rise to 74.01 cents after 2017.

Another Bank of Canada rate cut could slowly move the loonie downward again before an upward bounce begins in the latter half of the year, say economists. The marketplace happens to be pricing in a a lot more than Half chance the Bank of Canada will carry out yet another rate cut at its April meeting. The overnight rates are now 0.Half.

Pressure on the loonie from the rate cut is expected to be offset by the announcement of stimulus spending by the authorities the following month. Pm Justin Trudeau will table his government’s budget on March 22, that is likely to include billions for new infrastructure projects that are expected to increase economic growth in in the future.

“Using deficit spending by the Liberal government to stimulate the economy implies that pressure on the currency from potential monetary easing has been significantly reduced,” said CIBC in the note.

But don’t expect coming back to parity anytime soon. Economists say instead it is likely the loonie will remain near current levels for the following few years at least, which CIBC says can help keep Canada’s non-energy exports competitive on the global stage.

jshmuel@nationalpost.com

twitter.com/jshmuel