Canadian Dollar Forecast March 2017
Summary
FX markets have experienced limited volatility following President Trump’s first month in office, in contrast to the previous months where various global events such as Brexit and the US election caused great volatility in the foreign exchange. The majority of Canadian banks continue to forecast an increase in the USD/CAD foreign exchange well into the second quarter due to strong evidence of an interest hike by the Fed at the March meeting.
Oil Prices
Oil prices rose steadily throughout early February, until a supply increase from the US dropped prices. Further price drops were incurred when the energy ministry data revealed Russia’s February oil output was unchanged from January at 11.11 million barrels per day. Russian oil suppliers made cuts at 100,000 bpd from October 2016, a third of what Russia pledged in its agreement with OPEC. The weak compliance to global oil supply restrictions shook confidence, resulting in more than 2% drop in the oil price on the 2nd of March. An appreciating USD may dilute the United State’s effect on future oil prices due to higher cost barriers for US oil for foreign investors.
Canadian Outlook and Bank of Canada
The loonie has undergone pressure from rising interest rate spreads with the US, trading at lower values in contrast to the previous fiscal months.
The substantial current account deficit leaves the loonie vulnerable, particularly because it is financed exclusively by foreign capital. If the Bank of Canada or Canadian government are not prepared for significant reversal of foreign investments, this could result in lower confidence in the Canadian dollar which would exacerbate the loonie’s decline.
The depreciation of the Canadian dollar would be beneficial for Canadian exporters as it would encourage imports due to lower cost barriers. A trade surplus could offset the risk of foreign divestiture, therefore adding value to the Canadian dollar.
The uncertainty of NAFTA negotiations leaves questions about the future of the trading landscape in North America.
U.S. Economy and Federal Reserve
While the inauguration of Donald Trump caused large variations to the USD, the greenback remained fairly stable the remaining duration of the month. Hawkish signals from Fed officials, including Chair Janet Yellen, have given investors reason to believe a strong potential (95% chance currently priced in) for an interest hike to take place in mid March. If the interest hike is implemented in March, this is likely to result in an increase in value for the USD.
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
FX Forecast Table (February)
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 |
1.37 |
Canadian Imperial Bank of Commerce |
1.36 |
1.37 |
Toronto Dominion Bank |
1.35 |
1.34 |
National Bank |
1.40 |
1.37 |
Click Here to Subscribe