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Canadian Dollar Weakens on Bearish Forecasts

March 18, 2019 at 17:49 by Andrew Moran

Canadian 20-dollar billsThe Canadian dollar is weakening to start the trading week, driven by multiple bearish forecasts that suggest the loonie will crumble to multi-year lows. The buck’s losses were capped by rallying energy prices as crude oil prices have surged more than 5% in the last week.

On Monday, TD Bank published a report that projected the dollar may tumble 71 cents by the end of the year. This would represent a 5% decline in nine months – it has already fallen 1.3% against the US dollar since the beginning of March.

What would drive the loonie’s plunge? The financial institution wrote in a research note:

Prospects for Canadian dollar have shifted considerably to the downside over the medium-term. This comes in the wake of a poor fourth quarter GDP report, and the Bank of Canada returning to the drawing board on what it got wrong. To put it bluntly, the Canadian dollar has established itself uniquely as a ‘problem child’ in the G10. The positives are hard to find.

David Wolf of Fidelity Investments is even more bearish when it comes to the loonie. Speaking in an interview with Bloomberg News, Wolf thinks the dollar has a good chance of sinking to its all-time low of 62 cents as the national economy slumps and the global economy cools down.

A 62-cent dollar would be a 17% drop from today’s level. But it is feasible, says the former Bank of Canada (BOC) advisor, as home values drop, household debt rises, and competitiveness weakens. All of these are ingredients for a recipe of a recession, warns Wolf.

The loonie’s descent on Monday was capped by rallying energy prices. April West Texas Intermediate (WTI) crude oil futures rose $0.54, or 0.92%, to $59.06 per barrel. May natural gas futures surged $0.05, or 1.75%, to $2.85 per million British thermal units (btu). Oil continues to be one of Canada’s biggest exports.

On the data front, foreign investors acquired a net $28.4 billion in Canadian securities in January, which followed a $20.49 billion divestment in the previous month.

Investors will now look ahead to inflation numbers for February and January retail sales data on Friday.

Meanwhile, Prime Minister Justin Trudeau and his scandal-plagued Liberal government are set to table federal budget to woo voters ahead of October’s federal election. Early speculation suggests the budget will target nationwide high-speed Internet by 2030, subsidize the news industry to the tune of $600 million, and further support for new homeowners. The budget is set to be released on Tuesday.

The USD/CAD currency pair climbed 0.21% to 1.3363, from an opening of 1.3336, at 17:30 GMT on Monday. The EUR/CAD added 0.23% to 1.5137, from an opening of 1.5103.

If you have any questions, comments, or opinions regarding the Canadian Dollar, feel free to post them using the commentary form below.

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