Canadian Dollar Monthly Update July, 2017
Economic Outlook and Summary
2017 started off strong in Canada. Gross Domestic Product (GDP) was up 3.7%. The energy sector within Canada also experienced an increase in capital investment. Growth in Canada is expected to increase by 2.8% this year, making Canada one of the top scorers in the G7. 2017 is expected to be the year that all major sectors of the economy contribute to sustainable economic growth in Canada. However, NAFTA re-negotiations have instilled risk in the market and to investors as trade barriers may result in higher costs to businesses and investors. Employment gains in Canada have been modest relative to the United States with the unemployment rate in Canada at 6.4%. Over the first two quarters of 2017, Canada experienced a growth in consumer spending and an even higher growth in residential investment. Government expenditures and investment is expected to add approximately 0.5% of growth in Canada over 2017.
Oil Prices
Oil prices have remained quite low over 2017 around the $40/barrel mark for WTI. There has been a 22% decline from the 52-week high hit in January 2017. Oil inventory has declined more than expected and it seems as if demand is even lower than supply on the world stage even though the Organization of Petroleum Exporting Countries (OPEC) agreed to cut oil production to drain the excess supply. Imports of oil into Japan, the world’s fourth largest oil consumer, fell nearly by one-quarter over the past decade. Demand for gasoline usage in the United States has fallen short of expectations and is predicted to remain flat over the year. China, which is the world’s largest net importer, has experienced an excess of supply with some of the country’s biggest refineries to shut down in the third quarter of 2017. Whether or not OPEC chooses to invoke its plan for a price floor of $50/barrel is uncertain.
The Canadian Dollar and Bank of Canada
We have started to see the CAD strengthen from mid-June 2017-present due to a foreseeable interest rate hike from the Bank of Canada. An interest rate hike would increase the cost of borrowing, cooling down the housing market and stabilizing and lowering peoples’ debt to equity ratio. Furthermore, the interest rate hike is to cool down inflationary pressures with the current cost of borrowing being relatively cheap. As expectations of an interest rate hike come into play, Canadians will tend to borrow more as rates currently remain low over the short term before the hike is implemented. Therefore, there is a greater demand of CAD over the short term.
US Dollar
It seems as if though the USD has remained quite bullish over 2017 so far and is now seeing a reverse effect, which is likely to continue over the short term at least. All the speculation of economic growth in the United States and expectations of policy shift have likely already been factored into the USD. However, the market is unsure about those previous expectations now. Many, including investors, may have changed their mindsets by considering in greater risk and uncertainty in economic growth and foreign affairs in terms of policy within the United States. This would likely negatively impact the demand for US dollars, depreciating the USD.
FX Forecast Table
Bank |
2017 – Quarter 4 (USD/CAD) |
2018 – Quarter 1 (USD/CAD) |
Scotiabank |
1.28 |
1.28 |
Royal Bank of Canada |
1.30 |
1.31 |
Bank of Montreal |
1.32 |
1.31 |
Canadian Imperial Bank of Commerce |
1.31 |
1.32 |
Toronto Dominion Bank |
1.30 |
1.30 |
National Bank |
1.30 |
1.27 |
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By Admin | July 10, 2017 | Monthly Canadian Dollar Outlook/Forecast |
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