May 2021: FX Outlook
Economic Outlook and Summary
The loonie shows no signs of stopping as the Bank of Canada had to revise its economic outlook as the recovery of the economy exceeded its expectations and reduced its’ QE from $4 Billion to $3 Billion. The US dollar continues to remain weak as employment levels remain at 4% below pre-covid levels. Commodities such as oil and lumber continue to rise as the global economy gains momentum during its recovery phase.
The USD and Federal Reserve
The US GDP has fallen back by 2% to its pandemic low back in April. There is hope yet, as the US GDP did recover 6.7% in Q1 and is expected to hit 10% by the end of Q2. This hope also comes from the fact that vaccination efforts in the US have been increasing and consumers will soon be able spend the money that they have saved during the crisis. Alongside this, the US Government has also announced that it would spend even more money to combat the pandemic in 2021 then it did in 2020. However, the US is still in a pandemic and with the increased deficit to due spending, the US dollar seems to be weakening.
The Canadian Dollar and Bank of Canada
The Canadian economy continues to recover from the pandemic and the Bank of Canada had to revise its economic outlook as Canada’s and the global economic recovery had exceeded its expectations. The new federal budget aims to invest $100 Billion dollars in the fight against COVID with moves such as extending the current wage- and income- subsidy programs and as well as investing into a Canada-wide child care program aiming to bring more women in the labour force. These factors bring fiscal stimulus for Canada to an estimated 4.5% of GDP for 2021. Canadian employment levels are only 1% below pre-covid levels and although we are seeing a spike in covid cases in the last month, this is only temporary as more Canadians get vaccinated and covid cases will begin to fall. With these factors, the Canadian economy is well on its way to recovery.
Oil Prices
Commodity prices continue to rise as the global economy begins to recover. Statistics Canada has reported that energy sector products have increased by 54.7%, metal ores/non-metallic minerals by 13.5%, forestry products 6.8%, and motor vehicles/parts by 4.6%. As well, Oil has increased to 64.71 USD/Barrel from 59.33 USD/Barrel since last month. Gold has increased to $1814.74 USD/oz since last month’s $1744.13USD/oz.
Forecast Table
Bank |
2021 – Quarter 3 (USD/CAD) |
2021 – Quarter 4 (USD/CAD) |
Scotiabank* |
1.23* |
1.23* |
Bank of Montreal |
1.22 |
1.21 |
Canadian Imperial Bank of Commerce* |
1.27* |
1.30* |
Toronto Dominion Bank |
1.23 |
1.23 |
National Bank |
1.19 |
1.20 |
*Forecast based on previous month. Forecast Table is for mid-market rates, and subject to change anytime.
By Admin | May 19, 2021 | Monthly Canadian Dollar Outlook/Forecast |
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