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Canadian Dollar Forecast: CAD Tipped to Strengthen Against Pound, Euro and Greenback on Strong Trade Figures

Canada posted a C$1.86 billion trade surplus in June, helped by record exports. No doubt, the declines seen in the CAD through much of 2013 will be aiding the economy, and the Bank of Canada will surely be wishing for further depreciation of the currency which remains elevated by historical standards.

The following rates are witnessed as we head into the weekend:

  • The pound sterling to Canadian dollar (GBP/CAD) exchange rate is 0.17 pct lower on a daily basis at 1.8364.
  • The euro to Canadian dollar (EUR/CAD) rate is 0.11 pct higher at 1.4619.
  • The US to Canadian dollar (USD/CAD) exchange rate is 0.05 pct lower at 1.0923.

Note: All quotes here are wholesale in nature; they are subject to a discretionary spread by your FX payments provider. An independent provider will guarantee to undercut your banks offer, in some instances they are able to offer up to 5% more FX. Please learn more.

Canadian dollar forecast to strengthen

"The encouraging trade figures augured better for Canada’s recovery, supporting the loonie. U.S. importers should take some cover while USDCAD remains in the C$1.09s as the loonie could be a positive jobs report away from reclaiming C$1.08," says Joe Manimbo, currency analyst at Western Union.

Forecasts call for Canadian hiring to increase by 20,000 in July and unemployment to remain at 7.1 percent. The jobs report is due Friday.

Canadian economic growth to improve

Those hoping for a weaker Canadian dollar should be wary - it appears the CAD will benefit through the remainder of 2014 on the back of an improving economy.

"The strong improvement in the real trade balance in June is expected to help push the annualised second-quarter 2014 gross domestic product (GDP) growth rate upward to 2.5% from the modest, weather-impaired, 1.2% gain in the first quarter," says Paul Ferley, Assistant Chief Economist at RBC Economics.

The RBC analyst goes on to say:

"This growth projection is in line with the Bank of Canada’s most recent forecast and is thus unlikely to prompt any immediate shift in policy with the overnight remaining on hold at 1.00%. Any shift in policy is more contingent on growth during the second half of 2014 and into 2015.

"Our forecast assumes an above-potential GDP growth rate being maintained during this period that will likely result in the central bank starting to move official rates higher starting in the second quarter of 2015."

Meanwhile, the US economy also delivered decent trade figures:

U.S. Trade Balance for June reported a deficit decrease to -$41.5 billion better than the -$44.2 billion estimate as exports increased and imports decreased.

Exports of goods and services increased $0.3 billion to $195.9 billion. Imports of goods and services decreased $2.9 billion to $237.4 billion.

Forecast remains constructive for the USD/CAD

Canadian dollar forecas vs US dollarWill the US dollar fall back against the Canadian dollar?

According to the charts the trend remains favourable towards the greenback.

Analyst Shaun Osborne at TD Securities says:

"The broader trend in USDCAD remains very constructive. July was positive for the medium-term USD outlook from a number
of perspectives—the first higher monthly close since January, breaking the March/July correction channel and holding a
weekly close above the 200-day MA—which has been an important signal directionally for funds over the past three years.

"With bull trend momentum signals aligned across a range of timeframes now, we see limited downside potential for USDCAD
and look for a retest of the 1.11/1.12 area in the next few weeks.

"We think new long-term cycle highs will support the developing case for an eventual push to 1.16/1.17."