Farm Credit Canada bases its prediction on oil price forecast and interest rate spreads between the U.S. and Canada
WINNIPEG (CNS Canada) — Farm Credit Canada predicts the Canadian dollar will spend the year around the US75 cents mark, which will be slightly softer than last year’s average of 76 cents.
“We’re going to see volatility throughout the year obviously, but when we look at that season, or the full-year average, we’re looking for it to be right around that 75 cents,” said Craig Klemmer, principal agricultural economist at FCC.
FCC bases its prediction off the oil price forecast and interest rate spreads between the United States and Canada. Oil has been on the upswing lately, due to production cuts from the Organization of Petroleum Exporting Countries (OPEC).
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“On the downside of the oil side of the complex, the Canadian economy, economic growth, U.S. growth for the economy looks to be slowing down a little bit and that’s going to put some downward pressure as we move throughout the year,” Klemmer said.
The Bank of Canada has lowered its expectation for interest rate increases, and FCC forecasts one to two rate increases to the benchmark overnight rate this year. In the U.S., FCC expects two or three interest rate increases are coming this year.
Global trade could also affect the dollar. When looking south of the border, Klemmer said FCC pays close attention to the trade talks between the U.S. and China and what affect that could have on global trade.
“We’re going to continue to be monitoring how those relationships are through 2019. And we do see a thawing in that relationship and that’s going to help the markets out moving forward in 2019,” he said.
The Canadian dollar could also feel some pressure from economic growth rates in the U.S. and Canada.
FCC expects the American economy to grow slightly faster than the Canadian economy at two to 2.5 percent. In Canada, the Bank of Canada expects inflation to hit its two percent mid-point target.
When looking at agriculture, the slightly weaker Canadian dollar should be good for the industry. Canada’s agriculture industry is export driven with most business done in U.S. dollars, so any time the Canadian dollar is weaker, it should support agriculture.
“That’s going to give us a little of a competitive advantage on the returns for our pork and beef exports, as well as our grain and oilseed and pulse exports, and those will help to improve, or help support Canadian agriculture,” Klemmer said.
