Analysts see continuing weakness ahead for loonie

Economists with the major Canadian banks expect the Canadian dollar will be in the low to mid US70 cents range, but others think it could fall to the low 60 cents. One grain analyst thinks the loonie could rally as the expected multiple U.S. interest rate increases fail to materialize.  |  Reuters photo

Some currency experts believe the loonie will drop significantly this year, helping buffer Canadian farmers against lacklustre commodity prices.

Ken Courtis, chair of Starfort Investment Holdings and a member of federal Finance Minister Bill Morneau’s Advisory Council on Economic Growth, said U.S. President Donald Trump’s economic stimulus program will strengthen the U.S. dollar and drive down the loonie.

“I’m predicting that we’ll see a substantially lower Canadian dollar,” he said during a recent Business News Network interview.

Courtis said Trump’s promise to reduce regulation, cut taxes and increase infrastructure spending will reinvigorate the U.S. economy.

He expects the loonie will fall to US62 cents over the next 18 months from 75 cents.

The loonie has been falling since 2013, when it was trading at par with the U.S. dollar.

That has helped protect Canadian farmers against falling commodity prices because they are traded in U.S. dollars and the lower loonie puts more money in their pockets.

Courtis isn’t the only analyst who sees a plummeting loonie. Alfonso Esparza, senior currency strategist with OANDA, told BNN that Trump’s economic stimulus program will force the U.S. Federal Reserve to raise interest rates three or four times in 2017, putting downward pressure on the loonie.

He believes the loonie could drop as low as 60 cents this year.

The forecasts of Courtis and Esparza are at odds with those of Scotiabank, CIBC and RBC, which all have the loonie trading in the range of 72 to 75 cents for the remainder of 2017 and 2018.

Some analysts are even expect a rising loonie. Errol Anderson, analyst with ProMarket Wire, believes the U.S. economy will falter and the loonie will surge as a result.

“I really think the U.S. is going headfirst into a recession,” he said.

U.S. gross domestic product grew by a disappointing 1.9 percent in the fourth quarter of 2016, and the Federal Reserve Bank of Atlanta expects .6 percent growth in the first quarter of 2017.

“To me, the U.S. dollar is setting up for a fall,” said Anderson.

The U.S. Federal Reserve says it expects to raise interest rates four times in 2017. Anderson feels there is zero chance of that happening.

“The whole thing is just a façade,” he said. “If they hike it one more time, they’re going to drive themselves right into recession.”

Anderson believes there is good support for a 75 cent loonie, with upside potential of 78 cents if the U.S. heads into recession.

He has been hedging the dollar by buying June call options.

“We’ve got a lot of cattle feeders covered against the risk of a rising U.S. dollar,” he said.

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