Canadian Dollar Monthly Update November, 2016
Foreign Exchange Outlook
November 2016
US Dollar (USD)
Earlier this year, The Federal Reserve in the United States had expressed their intent to raise interest rates. If this does happen towards the end of the year, the USD should gain strength as it has not been fully priced in yet. However, the Fed may not take such action due to uncertain events, such as the result of the US presidential election. Brexit caused the USD to suddenly appreciate due to flight of capital to the US in being a safe haven. Therefore the USD can continue to do well, mitigating impact from election results.
Over the past month, the USD reached its highest point since February 2016. With higher expectations of an interest rate hike, there has been a higher demand for the USD due to current expected lower short-term borrowing costs. Third quarter employment and GDP growth showed strong results in the United States relative to the Canadian economy. Additionally, trade and domestic demand has been higher. Private sector growth outweighed government spending in GDP, which has been the best record since 1950. A lot of optimism has been set for the United States from the private sector as 2017 approaches.
Canadian Dollar (CAD)
Despite oil prices raising in the month of October, the CAD could not capitalize on such a factor and lost about 2% against the USD over the past month. With tighter mortgage rules being initiated from the government, the housing market in Canada is expected to slow down. The Bank of Canada is inclined to cut the overnight rate, and hence the interest rate, which may cause more demand of Canadian dollars from domestic and foreign investors, appreciating the value of the CAD over time. However, such a rate cut may not happen unless the policy changes in the housing market start to threaten financial stability. The Canadian economy may benefit with tighter monetary policy in the US if it does happen, allowing the CAD to appreciate against the USD. The government is also aiming for an increase in government spending and investments to boost productivity, training and development, and technological gains within the public and private sector.
It is important to note that with interest rate spreads becoming worse between Canada and the US along with a lack of consistent increases in oil prices, the CAD may continue to remain weak over the short-term. OPEC’s strategy to reduce oil output has been very difficult to maintain as oil producing countries have an incentive to maximize market share and output in order to support their own economies with lower public financing and trade deficits.
Great British Pound (GBP) and Euro
With all the volatility from Brexit over the past few months, the GBP considerably appreciated in value more towards the end of the past month. The United Kingdom seems to be getting back on track with its economic adjustment. The Bank of England has engaged in talks of cutting interest rates and the government has been looking into policies to invest and grow the economy. Such talks and events bring greater optimism for the UK, and hence, give greater confidence to the value of the British Pound. However, the European Central Bank seems to be unable to currently stimulate the stagnant economy within the Euro zone. With such stagnation, it is likely that the Euro will not depreciate too much from the current level.
FX Forecast Table
Bank |
2017 – Quarter 1 (USD/CAD) |
2017 – Quarter 4 (USD/CAD) |
Scotiabank |
1.30 |
1.25 |
Royal Bank of Canada |
1.34 |
1.33 |
Bank of Montreal |
1.35 |
1.31 |
Canadian Imperial Bank of Commerce |
1.29 |
1.33 (Q2 2017) |
Toronto Dominion Bank |
1.34 |
1.32 |
National Bank |
1.33 |
1.30 |
Knightsbridge Foreign Exchange has based the opinions expressed herein on information generally available to the public. Knightsbridge Foreign Exchange makes no warranty concerning the accuracy of this information and specifically disclaims any liability for trading decisions based on the opinions expressed and information contained herein. Such information and opinions are for general information only and are not intended to present advice with respect to matters reviewed and commented upon.