Canadian dollar: Forecasts from five major banks, best G10 currency only means modest recovery

The CAD weakened in June along with nearly all G10 currencies. As we enter the second half of the year, some analysts have updated their Canadian dollar forecasts. Here you can find the expectations of five major banks regarding loonie’s outlook for the coming months. Although the CAD is set to stay resilient, it is unlikely to enjoy substantial gains.

Wells Fargo

“We believe the Bank of Canada will maintain a relatively hawkish stance on monetary policy, while elevated energy prices and relatively sound consumer finances are also favorable factors. In addition, we expect the Bank of Canada to hold policy rates steady even as the Fed eventually begins to ease monetary policy. We look for modest CAD strength against the dollar by mid-2023, the most optimistic view on any G10 currency.”

MUFG

“The BoC meeting in July will be important and if the BoC follows the Fed’s lead, it will limit near-term downside risks. However, the global backdrop for risk is set to remain unfavourable and that points to broader US dollar strength. However, aggressive BoC action and a rebound in crude oil prices like we expect should limit the scope for USD/CAD to move higher in Q3. The risk of a downturn in 2023 is increasing and given Canada’s closer links to the US where the Fed’s actions make a recession there more likely, it could result in a more muted recovery for the Canadian dollar. We expect crude oil prices to decline in Q4 which could further undermine the extent of CAD recovery. So while we expect CAD recovery from current levels, we have become a little more cautious over the extent of the recovery.”

CIBC

“A likely 75 bps hike by the Bank of Canada in July, and the potential for another move of that magnitude in September if we don't see enough of an inflation deceleration by then, should be aggressive enough to allow USD/CAD to remain around current levels over the next three months. Markets appear to be overpricing both BoC and Fed tightening this year, but comparatively more for the BoC, and that recalibration will lead the CAD to end the year weaker, with USD/CAD expected to reach 1.31 by then. In 2023, the loonie could weaken further on a global slowdown in growth as interest rate hikes take a toll on activity, which will weigh on commodity prices and dent nominal exports for Canadian natural resource producers. Look for USD/CAD to reach 1.33 in early 2023, before recouping some of that ground further into the year as the USD loses favour globally.”

Credit Suisse

“CAD is well positioned within the G10 commodity FX complex: BoC is seen as credible, activity data are solid, but housing represents a near-term risk. A range approach remains valid: we widen our USD/CAD target range slightly from 1.2650-1.3100 to 1.2670-1.3340, with a midpoint range target of 1.3000.” 

TDS

“USD/CAD should continue to maintain the 1.27/1.31 range in the short-term. The bias, though, remains to the upside, especially as BoC rate hikes start to rattle the housing market and risk appetite remains shaky. We also downplay the importance of the oil factor given limited longer-term investment implications. While the consensus view around USD/CAD seems less varied than other pairs, we're generally more bearish CAD in the months ahead.”