#CBC: “Loonie sinks to two-week low: Is this the start of another big drop?” #Toronto #Montreal #Calgary #Ottawa #Canada
The loonie is already down greater than three per cent this 12 months and was at 77.11 cents US on Friday. But analysts say the dangers going through the Canadian greenback might intensify additional subsequent week, pushing the forex nearer to a “tipping point.”
Bipan Rai, head of North American international trade technique at CIBC Capital Markets, mentioned that draw back dangers for the loonie are being pushed by political occasions comparable to NAFTA talks and the uncertainty round Canada’s exemption from the U.S. metal and aluminum tariffs that might be renewed subsequent week.
“We’re monitoring [Canadian dollar] price behaviour closely now, but the tipping point will come if markets chase the Canadian dollar-U.S. dollar cross below the 76.40 to 77.00 [cent] range,” he mentioned.
Canada’s exclusion from the Trump administration’s hefty tariffs on metal and aluminum is about to run out subsequent week on June 1, with U.S. officers hinting this week that tariffs might be imposed if the U.S. doesn’t get a greater NAFTA deal as its deadline additionally looms.
In addition that, the U.S. launched an investigation this week into whether or not autos imported from Canada and different nations posed a safety risk.
The investigation permits the world’s greatest financial system to impose tariffs if nationwide safety is beneath risk.
“I think there is a hefty ‘NAFTA discount’ being applied to the currency at this point due to concerns that the agreement may lapse,” mentioned Shaun Osborne, chief international trade strategist at Scotiabank.
Meanwhile, U.S. crude oil costs had been down for a fourth consecutive day on Friday for a complete weekly drop of greater than three per cent. The drop got here after studies that prime producers Saudi Arabia and Russia might increase manufacturing later this 12 months, rising provide available in the market.
Because oil is one among Canada’s main exports, its worth has weighed on the loonie prior to now, however the correlation between the 2 has eased off currently.
However, Mazen Issa, senior international trade strategist at TD Securities, mentioned falling oil costs nonetheless symbolize one much less optimistic working within the Canadian greenback’s favour.
He sees the Canadian greenback “on the cusp of an appreciable downleg” and is looking for traders to favour currencies that will profit from a weaker loonie.
“Naturally, this has us eyeing $1.30 as the next major topside attractor for U.S. dollar-Canadian dollar cross, though a move towards $1.32 should not be ruled out in the coming weeks,” he mentioned in a notice on Friday. That is an nearly two per cent improve within the worth of the U.S. greenback in opposition to the loonie.
But Scotiabank’s Osborne thinks that even when oil costs dropped nearer to $65 US a barrel within the close to time period, the final pattern in commodity costs is robust and that may bode effectively for the Canadian greenback. Oil is at the moment buying and selling round $67 US.
“Rising commodity prices boost Canadian terms of trade and usually produce positive economic outcomes — rising incomes etc.,” he mentioned. “This is the opposite of what occurred in 2015 when oil prices slumped. The terms of trade effect is not fully reflected in the Canadian dollar at this point.”
Impact of upper charges
He additionally thinks that the Bank of Canada’s rate of interest coverage assembly subsequent week will lend help to the loonie because the central financial institution talks positively concerning the Canadian financial system in preparation to rising rates of interest later in the summertime.
“Despite the uncertainty over the NAFTA outlook, the Bank of Canada may sound a little more hawkish [in favour of higher interest rates] in next week’s policy statement to prepare markets for a late summer tightening,” Osborne mentioned. “If it does, the Canadian dollar should rally modestly.”
Rai of CIBC agreed that the Canadian financial system is performing effectively and mentioned it probably grew quicker than the Bank of Canada’s development forecast of 1.three per cent within the first quarter of this 12 months.
“We still need to see the national accounts data to confirm this, but that is a step in the right direction for a rate hike in the coming months,” he mentioned.
Note: “Previously Published on: 2018-05-26 04:00:00, as ‘Loonie sinks to two-week low: Is this the beginning of one other large drop?’ on CBC RADIO-CANADA. Here is a supply hyperlink for the Article’s Image(s) and Content”.