Canadian Dollar Monthly Outlook October, 2017
Economic Outlook and Summary
September was a significantly less volatile month compared to the entire fiscal year of 2017. The loonie came off its sugar rush and gradually depreciated throughout the entire month and is expected to continue its drop for October.
Despite softer US growths due to hurricanes, past empirical data has proven that such natural disasters have minimal overall national economic performance in the United States.
Most banks are consistent in their position that the USD will appreciate well into 2018 Q1. Whether the greenback will continue to appreciate in Q2 is negligible as the banks’ projections on the USDCAD are conflicting.
The unclear performance is a result of proactive decision making by both central banks of recent date. The Bank of Canada has been hawkish and playing defensively, announcing their actions will be contingent to economic trends and inflationary data.
Oil Prices
Oil prices woke up from their week-long hibernation after OPEC hint of talks of global export restrictions until March on October 9, 2017. OPEC is looking to include other global suppliers to join their cause.
As oil prices became bullish US Shale oil producers upped their oil supply. With global suppliers such as the US increasing their exports, it may take a while for traders to see significant oil climbs.
Oil prices closed at mid $49.
The Canadian Dollar and Bank of Canada
The loonie appreciated by over 20% the third quarter as a result of favourable interest spreads and oil price increases. We saw a larger foreign investment on Canadian securities which can potentially top last year’s record on corporate bond and equities.
Despite strong economic outlook, the Bank of Canada has become slightly hawkish in their rhetoric, stating that the dollar is still vulnerable to reversals as investment spending can cause the Canadian economy to grow through “non-inflationary” means. Foreign investment in Canadian assets remain strong but a reversal could have a negative impact, particularly if said reversals occurred by next year when USD is expected to rebound among all global currencies. Canada is still running a large current account deficit (3.1% of GDP in Q2) which was financed entirely by portfolios and other short term capital inflows. Variables that could cause foreign divestment include loss in confidence in the Canadian housing markets or a raw deal from trade negotiations through NAFTA.
The USD and the Federal Reserve
The Feds are still on schedule for a tightening monetary policy for December. The central bank is optimistic on their stance on 4 hikes by the end of 2018 but markets are dubious of the possibility.
Whether early interest hikes will have a significant impact on the USD is negligible as the aftermath of the normalization policy in the long-run and the hedging of global investors moving forward could prove otherwise.
The Feds and the Bank of Canada are in sync regarding their stance on heavy revision of economic data and significant policy decision making.
FX Forecast Table October 2017
Bank |
2018 – Quarter 1 (USD/CAD) |
2018 – Quarter 2 (USD/CAD) |
Scotiabank |
1.18 |
1.18 |
Royal Bank of Canada |
1.27 |
1.26 |
Bank of Montreal |
1.24 |
1.23 |
Canadian Imperial Bank of Commerce |
1.30 |
1.28 |
Toronto Dominion Bank |
1.20 |
1.20 |
National Bank |
1.26 |
1.27 |
FX Forecast Table September 2017
Bank |
2017 – Quarter 4 (USD/CAD) |
2018 – Quarter 1 (USD/CAD) |
Scotiabank |
1.20 |
1.18 |
Royal Bank of Canada |
1.24 |
1.27 |
Bank of Montreal |
1.24 |
1.25 |
Canadian Imperial Bank of Commerce |
1.30 |
1.33 |
Toronto Dominion Bank |
1.20 |
1.20 |
National Bank |
1.22 |
1.24 |