It’s been a great run for the Canadian dollar from early 2020 through the second quarter of this year, but a pullback over the past month appears to have capped those gains. No wonder, says Christine Poole, CEO of GlobeInvest Capital Management, who believes the loonie tied to the range will not rise anytime soon.
“It is very difficult to predict the currency, and especially to try to do it in the next six months. The Canadian dollar has strengthened against the US dollar, say, over the past year, and that could be due to several factors. Perhaps this means that the Bank of Canada is probably more hawkish than the US Federal Reserve, and we have seen the resurgence of stronger energy prices, so generally there is a strong link between oil prices. and the Canadian dollar, ”Poole said, speaking on BNN Bloomberg on Tuesday.
“Having said that, I think we’re kind of limited in scope. My personal opinion is that we are probably in the range of the 75 to 85 cent levels, ”she said.
The Canadian dollar fell below $ 0.80 this week against the US dollar, the first time at that level since mid-April and as part of the loonie’s broader pullback against just under $ 0.83 in mid-May, a rate not seen since 2015..
The loonie has performed well against G10 currencies this year thanks to higher oil prices and a better economic situation in the face of the pandemic. Oil has been up for about a year, going from a low of $ 17 a barrel of West Texas Intermediate in April of last year to a high of $ 75 at the end of June of this year.
Poole says the ties between the Canadian and US economies will moderate fluctuations in the Canadian dollar over time.
“Ultimately, the economy is probably going to determine what happens to the currency, and I think our economic situation is somewhat similar to what is happening in the United States,” Poole said.
“We’re coming out of reopening and you’re going to see central banks potentially raising interest rates,” she said. “I don’t see the Canadian economy growing significantly faster than the US economy and that should probably be a condition in place for the Canadian dollar to continue to appreciate, so I think it’s somewhat limited. – not much higher or lower, let’s say. “
“Maybe he’s backing off a bit because of the strength we’ve seen over the last year,” Poole said.
U.S. Federal Reserve Chairman Jerome Powell told the House Financial Services Committee on Wednesday that there would be no immediate change to the Fed’s near-zero interest rate, insisting that the hike of inflation in recent quarters was more the result of pandemic contingencies than a sign of greater economic concern.
Powell said the economic recovery, peak employment and inflation reaching 2% are still “still a long way off” and therefore would remain stable regarding a potential policy change regarding central interest rates.
“Labor market conditions have continued to improve, but there is still a long way to go,” Powell said of the broader recovery.
Unemployment rates in the United States have improved in recent months, with 850,000 jobs added during the month of June, compared to an increase of 583,000 jobs in May. For its part, Statistics Canada said the Canadian economy created 230,700 jobs in June, with rising vaccination rates leading to continued declines in COVID cases and hospitalizations across the country.
Statistics Canada said part-time positions in the retail industry have seen a huge jump along with jobs in accommodation and food services. The unemployment rate in Canada fell to 7.8 percent from 8.2 percent in May. As a prospect, the employment increase in June caused the country to lose about 340,000 jobs, or 2% of the workforce compared to pre-pandemic levels in early 2020.
The Canadian dollar rose slightly on Wednesday as the Bank of Canada announced Wednesday a reduction in its weekly net purchases of Canadian government bonds to a target of $ 2 billion from $ 3 billion. The central bank said the risks of COVID-19 to the Canadian economy were “significantly reduced”, with increased economic growth expected for the third quarter.
“That was probably the market’s expectation,” Greg Anderson, BMO Capital Markets chief executive officer, told Reuters. “There was maybe a little price in the possibility that it could have been bigger.”
“[There is a little of a disappointment that the [Bank of Canada] didn’t take as hawkish a turn as some in the market probably thought, ”Anderson said.