Canadian Dollar Forecast April 2017
CAD experienced elevated volatility in March, increasing significantly into mid-March due to greater certainty of an interest hike. The USD/CAD rebounded immediately following March’s interest hike due to falling consumer and investor confidence.
Summary
Most banks continue to forecast an increase in the USD/CAD exchange well into Q2 where it is expected to peak. The combination of soft oil prices, wider interest rate differentials from the March hike, and other political events are all moderating factors that could cause the Greenback to continue to rise.
Oil Prices
Oil prices continued to soften in March as the United States and other global suppliers continued to produce significantly more oil. On April 6, Brent crude rose to over $56 a barrel (trading below $55 the previous day) after Trump announced missile strikes on Shayrat airbase in Syria. The attack led many investors to believe that oil supplies would further be restricted, causing oil prices to increase by over 1.5%.
Canadian Outlook and Bank of Canada
Despite rebounding after the interest hike, the Canadian dollar has continued to undergo pressure throughout March due to the Bank of Canada’s dovish stance.
Although a depreciating loonie would provide more incentive for Canadian exports, the impact on Canada’s trade balance has been questionable. Should the central bank delay an interest hike until early 2018, this would cause the CAD to further depreciate well into Q2 until hawkish rhetoric is introduced.
March showed a stronger correlation between the loonie and oil prices as the decline resulted in a larger depreciation of the loonie than expected. Should oil prices continue to rise after April 6th, the loonie may benefit due to finite oil production from other global suppliers looking to produce more oil.
The Bank of Canada’s adjustment in their MPR forecast on April 12th regarding its Monetary Policy could set the tone for the remaining fiscal year and early 2018.
U.S. Economy and Federal Reserve
The USD declined after the interest hike as investors began to pull out due to overestimated interest rate increases.
Upcoming stimulus can cause the greenback to appreciate. Additionally, protectionist policies and trade barriers could cause the USD to spike in the short-term but may cause investors to short the currency in the long-run should no adjustments be made to mitigate the impacts of long-term domestic trading.
FX Forecast Table (April)
Bank |
2017 – Quarter 2 (USD/CAD) |
2017 – Quarter 4 (USD/CAD) |
Scotiabank |
1.40 |
1.36 |
Royal Bank of Canada |
1.38 |
1.38 |
Bank of Montreal |
1.35 |
1.34 |
Canadian Imperial Bank of Commerce |
1.35 |
1.34 |
Toronto Dominion Bank |
1.37 |
1.35 |
National Bank |
1.35 |
1.38 |
FX Forecast Table (March)
Bank |
2017 – Quarter 2 (USD/CAD) |
2017 – Quarter 4 (USD/CAD) |
Scotiabank |
1.40 |
1.36 |
Royal Bank of Canada |
1.38 |
1.38 |
Bank of Montreal |
1.35* |
1.34 |
Canadian Imperial Bank of Commerce |
1.36 |
1.37 |
Toronto Dominion Bank |
1.35* |
1.34* |
National Bank |
1.4 |
1.37 |
*Taken from February Outlook
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