The apocalyptic warnings are coming fast. As both the Canadian dollar and North American oil prices fall to lows not seen since the early 2000s, experts haven’t been gun-shy in revising expectations for the currency and crude even lower.
David Doyle, an analyst at investment dealer Macquarie Capital Markets Canada Ltd is predicting the loonie will slip below 60 cents U.S. by the end of the year as the commodity slump that’s roiled oil prices goes on.
Adding to the loonie’s woes is an expected slowdown in consumer spending, and an industrial rebound (because of the lower dollar) that will continue to struggle to generate growth that’s badly needed to offset declines in the energy sector.
“Manufacturing and non-energy exports have far less ability to propel the economic outlook than they have in the past,” Doyle told Bloomberg News.
Bankers meanwhile have also been throwing around ever lower numbers for the price of oil, which as sagged even further in recent weeks amid more evidence that the Chinese economy – the world’s second-largest— is slowing.
Wall Street investment bank Morgan Stanley said Monday benchmark North American oil prices will fall to $20 as the U.S. dollar strengthens. That call was bullish compared to the one made by Scottish bank RBS for oil to hit $16 a barrel.
Another bank, Standard Chartered, suggested Tuesday – as U.S. oil prices hit lows last seen in April 2003 – that “prices could fall as low as $10” before the sell-off “had gone too far.”
Here in Canada, the official forecasts from big banks such as RBC are for oil prices to recover to $60 a barrel before the end of 2016. Unofficially though, they’re preparing for oil prices well below that.
At an investor conference on Tuesday, the head of Bank of Montreal, Bill Downe, said the bank had “stress tested” its loans to oil companies against $25 oil prices.
The bank is also stress testing its broader loan portfolios — which includes consumer mortgages, credit cards and auto loans — for an average of $35 a barrel over the course of the year.
For 2017 the bank is using $30 a barrel oil for its stress tests, and for 2018 it’s considering the potential effects of a $40 a barrel scenario.