Wednesday , April 21 2021

Continued loonie after all these years: the Canadian dollar will still be damaged in two years, says the CIBC



Briefing highlights

  • Loonie to stay weak
  • A Trudeau scene that I would love to see
  • Mixed actions, with Europe up to
  • New York prepares to open weaker
  • Canadian dollar just over 75.5 cents
  • What to watch today

And we talked about some old times

And we drank a few beers.

Still crazy after all these years

– Paul Simon

The Canadian dollar will still be hurt two years from now, according to CIBC World Markets.

Indeed, its economists have simply "taken some of the strength" out of the loonie in its latest forecast this week, in the wake of the fall in oil prices and the power of the US dollar.

This loss of strength is for the fourth quarter. But the CIBC's perspective is that the value of the currency will not be much different in the last quarter of 2020.

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The loonie won with the trade agreement between Canada, the US and Mexico, but that glow has now faded, chief economist Avery Shenfeld and economist Katherine Judge said in his view.

The currency weakness comes from West Texas Intermediate and Western Canada Select, the latter much more problematic than the US crude benchmark.

"While weakness in WTI and WCS moderated expectations for a December Bank of Canada increase, a modest boost could be on the agenda in early 2019 if OPEC shortens output," said Shenfeld and Judge, referring to it. to the expected oil cartel bid limit at its meeting in early December.

"But the loonie will crawl weaker than we thought until that happens, and our year-end level of 1.31 for the USDCAD implies a slightly softer Canadian dollar than our previous forecast."

They were referring to the US and Canadian coins for their symbols and, at 1.31, a loonie below 76.5 cents.

Shenfeld and Judge expect the Bank of Canada to raise its benchmark rate twice in the first few months of next year, a quarter of a percentage point each time, which would lead to 2.25%.

The rate increases are favorable to the loonie, so that the pace of increase of the central bank plays a role in the currency perspective. But its moves "will be limited" because of swollen debt levels among Canadian consumers, and the central bank will drop its US counterpart, the Federal Reserve.

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"A slowing economy will make BoC stand behind the Fed, especially because even if Ottawa eases corporate taxes a bit, the economy will still be seeing the fiscal tightening of Ontario and a few other provinces," said Shenfeld and Ms. Judge. said.

"That should cause USDCAD to settle at 1.30 lows next year."

That 1.30 translates into a Canadian dollar at just under 77 cents.

But the CIBC's outlook puts the loonie slightly above 74.5 cents by the end of 2019, after nearly 77 cents by the end of 2020.

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Mixed actions

Global markets are mixed until now, with Europe and New York poised to open.

"European stock markets are higher this morning as traders look at EU summit over the weekend," said David Madden, an analyst at CMC Markets, referring to the Brexit deal.

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"Traders have reacted well to yesterday's news that the UK and EU have reached an agreement, but getting it approved in Westminster is another matter. We will probably see low volatility today as many US traders will still be on vacation as yesterday was Thanksgiving. "

Tokyo's Nikkei closed, but Hong Kong's Hang Seng fell 0.4% and Shanghai Composite 2.5%.

In Europe, London's FTSE 100, German DAX and Paris CAC 40 rose by between 0.3 and 0.5% at about 5:25 am ET.

New York futures have fallen, and it's a huge day for retailers, of course.

"Today represents one of the biggest days of the year for retailers, from the Black Friday period to Cyber ​​Monday offering besieged companies an opportunity to take advantage of the trade fever that seems to grip the world," said market analyst Joshua Mahony in London.

"However, it is notable that although higher sales by the end of November have prolonged the shopping spell normally prescribed for December, this may increase the end of the street as the margins are decimated by seasoned shoppers making their purchases in advance . "

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The Canadian dollar was stuck at just over 75.5 cents.

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What to watch today

In addition to watching Black Friday's fights in US malls, investors will be eyeing Statistics Canada's October inflation and retail sales in September.

Economists generally expect the report to show that consumer prices rose 0.1% from September, with annual inflation remaining at 2.2%.

The retail report is expected to show little change in the value of sales a month earlier, but possibly a drop.

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