Outlook for Canadian Dollar (CAD) Remains Soft, Pound Could Hit 2.19 at Year-End
Recently released Canadian dollar forecasts from TD Securities confirm the CAD will likely struggle over coming months.
TD Securities have told clients that they “remain near-term bears on the CAD as persistent weakness is required to offset Canada’s competitive disadvantage.”
Recent economic data out of Canada has however been better than expected as we saw a solid bounce in Q3 following the technical recession in 2015H1.
Led by net exports and a rebound in domestic demand, TD Securities are forecasting a 2.5% annualised increase in economic growth.
The key risk for the Canadian dollar moving forward though remains global in nature.
“Renewed global headwinds are expected to provide a greater challenge to growth through the end of the year and into early 2016. The Bank of Canada i s forecast to remain on the sidelines as these developments unfold,” say TD Securities.
The Bank's last Q3 GDP forecast looks eminently beatable, and Governor Poloz himself signalled a measure of contentment on the direction of the economy this month.
Latest Pound / Canadian Dollar Exchange Rates
  | Live: 1.8602▲ 0%12 Month Best:1.8915 |
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| 1.7969 - 1.8044 |
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* Bank rates according to latest IMTI data.
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Regarding the all-important interest rate outlook TD Securities say the CAD should find a modicum of support as fresh interest rate cuts at the Bank of Canada are unlikely.
However, it is also worth point out that interest rate hikes are an even more remote prospect, and the currency is therefore likely to find little support as the pound sterling and US dollar are boosted by interest rate rises in the UK and US.
“We look for Canadian yields to close the year close to current levels. Moving into 2016 we look for the curve to steepen a s oil prices recover and the Fed finally hikes.
Concerning their forecasts for the Canadian exchange rate complex, TD Securities say:
“While USDCAD is at fresh highs, rate spreads point to some tactical downside risk but 1.28/1.29 (post-July BoC levels) should act a s a durable floor.
“We like AUDCAD higher a s the two economies are in different stages of the ToT shock and spreads suggest the pair should be trading closer to 0.98.”
The pound to Canadian dollar exchange rate (GBPCAD) is forecast to end 2015 at 2.06 before rising to 2.14 by March 2016 and 2.17 by the middle of 2016.
We recently noted that Lloyds Bank see a CAD recovery in 2016 driven by a gradual oil price recovery, however this view is not shared by TD Securities who see the GBP/CAD rising right until the end of the year where a maximum of 2.19 is expected to be achieved.
Elsewhere, the euro to Canadian dollar exchange rate (EURCAD) is forecast to be at 1.46 at the end of this year and 1.45 by mid 2016.
The US to Canadian dollar rate (USDCAD) is forecast at 1.33 by the end of 2015, 1.37 by mid-2016 and 1.33 by the end of 2016.
