WINNIPEG — The Canadian dollar has weakened considerably in recent days, but is more likely to see further declines relative to its U.S. counterpart rather than any sustained strength in the months ahead, according to an analyst.
The currency was trading at US78.35 cents at midday Wednesday, which was down by about two cents over the past week.
“This is the biggest two week move we’ve had on a trade weighted basis since the fall of 2008,” said Mark Chandler, head of fixed income and currency strategies with RBC Capital Markets in Toronto.
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While there are some domestic factors, including movements in crude oil, he said the latest weakness in the Canadian dollar was more a function of the strengthening U.S. currency than anything else.
The stronger U.S. dollar is tied to improving economic data and expectations that the U.S. Federal Open Market Committee will soon be adjusting its language on interest rates, effectively signaling a rate hike as early as June, said Chandler. He added that the U.S. is the only major country in the position to be raising rates.
RBC is forecasting that exchange rates will see one U.S. dollar buy C$1.34 by the third quarter of this year, or one Canadian dollar would equal just under 75 U.S. cents.
Given Canada’s close ties to the US, Canada’s economy will also improve, but any strength will be relative, said Chandler. “Unless we look a lot better in relation to the US, it won’t feed back to the currency.”
Canada is still one of the better performers internationally, said Chandler. However, while Canada could be considered “second-best,” he added that “it’s a long way from the best.”
