(August 30 – 12:15 ET) – The Canadian dollar has repeatedly flagged in response to news that should have boosted it, say CIBC World Markets’ economists. As a result, CIBC is softening its outlook for the loonie.
The dollar should have been buoyed by the rate hike pause in the U.S., says CIBC. Other positive factors for the loonie should include the huge current account surplus in the first half, and Canada’s equity market –the best in the world in 2000. But so far nothing has helped.
“We now expect the loonie to be no better than 1.48C$/US$ at the end of September, and have also moved to pare back a rally in the latter half of 2001, when the Fed should truly be done with its tightening,” says CIBC’s report.
The dollar is swimming upstream against the global appetite for American assets, and large Canadian dollar-denominated debt that was issued 10 years ago that is now coming mature and rolling into U.S. assets rather than returning to Canada. Through the first half of 2000, foreign investors have cut their holdings of Canadian debt by $10.5 billion.
In the meantime it notes that the loonie will have to contend with the possibility of further rate hikes in the U.S. and the probability that the Bank of Canada won’t match the Fed all the way up. If the Bank doesn’t keep pace, it expects to see the loonie sell off to $1.515 C$/US$.
-IE Staff