Wondering where the loonie is headed, and more importantly, whether you should buy up some greenbacks now for that trip later this year, or hold off in the hopes that it will win back some ground?
With the Canadian dollar alternating between deep dives and shallow recoveries of late, you’re not alone.
On net, the consensus appears to point toward a further weakening of our currency this year as an improving U.S. economy sends global investment flows into that currency and away from our own – a process that will drive down the value of the loonie.
How low can it go?
The loonie has shed more than 5.5 per cent against the U.S. dollar since the beginning of the year and as of Thursday was below 88 cents US – a level not seen since the recessionary days of mid-2009, or nearly half a decade ago.
What’s behind the decline is primarily a pick up in the U.S. recovery combined with somewhat dimmer economic prospects for Canada, a role reversal of the past few years when Canada’s economy was doing well while the U.S. economy languished while digging out from recession.
A sudden and fairly sharp depreciation in the loonie since the fall through February is expected to level off, according to experts like RBC, with the Canadian dollar holding at around 87 cents US for the balance of 2014. But it’s likely to depreciate to 85 cents through 2015, the bank warns, and that’s where it should hit bottom.
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But some economists say the possibility of an interest rate cut in Canada this year could weaken the loonie even further. A cut below an already ultra low rate of 1 per cent would send investment flows fleeing from the loonie, likely into an already strengthening U.S. currency.
Even without a cut at home, interest rates are now shifting into higher gear in the U.S. on improving growth prospects.
“The loonie is flying straight into some pretty stiff headwinds,” BMO senior economist Sal Guatieri said.
In short, if you need U.S. dollars for a trip abroad or to make a purchase in the United States, it’s likely wise to buy now.
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