The Canadian dollar is likely to depreciate against the U.S. greenback in the coming years, according to Geoff Stein, portfolio manager with the Global Asset Allocation Group of Fidelity Investments.
“[The Canadian dollar is] under a lot of pressure and appears overvalued to us,” says Stein who is based in Boston. “The U.S. dollar moving forward is a not only a safer but likely a more attractive currency to hold than the Canadian dollar in a lot of different scenarios that could play out.”
One of those scenarios is a return to the volatility and risky global environment of 2011. Says Stein: “Probably in that scenario we would opt for the more defensive reserve currency, which is the U.S. dollar.” As well, the continued, if moderate, growth of the U.S. economy is another indicator that the American dollar is likely to appreciate in value against the loonie.
The one scenario that would allow for a continued strong Canadian dollar, according to Stein, would be a return of the commodity “super-cycle. ” However, Stein believes the likelihood of that situation playing out is pretty low given the decline in demand for resources from countries such as China.
Stein predicts that the Canadian dollar is currently about seven to eight per cent overvalued compared to the greenback and could drop to as low as 90 cents U.S. within the next couple of years.
Of course, the chance of the dollar going straight to 90 cents is unlikely, says Stein. Instead, the more probably situation is a Canadian dollar that moves between 90 cents and a little above parity within that time frame. “I think that’s the range,” he says, “with probably a bias to the low range.”