Canada’s dollar has been fairly steady for a month or so, but the major banks are now forecasting the loonie will climb another few rungs on the currency ladder before the end of the year.
Most banks forecast a 77-78 cent US loonie later this year.
But a Canadian Imperial Bank of Commerce analyst last week warned that the Canadian dollar could spike to 80 cents if the Bank of Canada does not cut its lending rate by a quarter of a percentage point at its next meeting.
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The reasoning is that the central bank in the United States, the Federal Reserve Board, cut its rate by 25 basis points in June, pushing its rate to one percent, the lowest in 45 years.
Canada’s corresponding rate is 3.25 percent, after climbing by 25 basis points on March 4 and again on April 15, when the Bank of Canada was more concerned about the threat of inflation and reining in a hot economy.
International investors can now make significantly more by putting their money in Canadian bonds than in U.S. bonds. The inflow of capital helps support the loonie.
Many now expect the Bank of Canada to cut rates on July 15 because the economy has cooled, due in large part to the stronger currency. If the bank doesn’t drop its rate, CIBC senior economist Avery Shenfeld warns the loonie could soar.
He noted last week that Australia’s central bank did not drop its interest rate in June, sending that currency on a higher trajectory.
We are reminded of the higher currency’s effect on commodity prices each time the Canadian Wheat Board releases a pool return outlook, the price of hogs slips and canola futures dip on the Winnipeg exchange.
Meanwhile, grain prices have been dropping for another reason – good weather.
Crop-saving rain fell in many areas of central Saskatchewan on the weekend. Yields have already been hurt, but the soaker rescued many crops.
It also rained in many areas of the American Midwest, pushing the outlook for corn and soybean yields higher.
And farther south, the winter wheat harvest is proceeding under sunny skies.
With lower returns expected in the coming year, farmers who haven’t already switched to direct seeding to reduce their costs might do well to consider it now.
Successful direct seeding starts at harvest with well managed crop residue.
