Josh Nye, Senior Economist at RBC, explains they see more upside coming in USD/CAD but not record highs. They forecast USD/CAD will trade at 1.46 (68.5 in US cents) during the second quarter and at 1.43 (69.9) in the third.
“Canada’s currency was worth 77 US cents at the start of the year but lost 10% of its value in recent weeks, dropping to a four year low of just 69 cents before recovering slightly in the past few days. Broad strengthening in the US dollar has been a factor—the greenback was at times up more than 9% against all currencies (on a trade-weighted basis) and about 7.5% higher compared with advanced economies. Among the latter, Canada is joined by other commodity producers (Australia, Norway) and countries launching new quantitative easing programs (New Zealand, Australia again) in seeing double-digit declines in their currencies.”
“That the Canadian dollar has weakened in an environment of significant risk aversion, collapsing energy prices, and general demand for US dollars is unsurprising. Given continued uncertainty over the depth and duration of coronavirus containment measures, it’s too early to say whether risk appetite or oil prices have hit bottom. New easing announced by the Bank of Canada—it cut the overnight rate to its effective lower bound and launched its first QE program on March 27—could also send the currency lower as markets continue to digest those moves. But we don’t think the Canadian dollar is headed for its all-time low of 62 US cents seen in the early-2000s.”
“The Canadian dollar’s darkest days have come amid periods of financial market volatility, from the 1998 Russian financial crisis and LTCM collapse to the dot-com bust in the early-2000s. The same dynamic is at play now as investors grapple with an unprecedented, sharp downturn in global economic activity. The Canadian dollar’s stronger relationship with oil prices (compared with decades ago) isn’t helping. But a healthier fiscal position and less reliance on external borrowing should provide a backstop. 69 cents (CAD/USD) might not be as bad as it gets, but we doubt 62 cents will come into view.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.