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Oil prices and weaker demand for Canadian goods coupled with a possible rate by the Bank of Canada could extend the loonie’s depreciation for another few months, in the opinion of economists at National Bank of Canada Financial Markets.

Key quotes

“We’ve had to reduce our targets for commodity prices as well, with WTI oil now expected to average around $47/barrel this year. That, coupled with weaker demand for Canadian goods and self-inflicted wounds such as cancelled energy projects and rail disruptions, prompted us to lower our call for 2020 Canadian GDP growth to just 1.5% (from 1.8% previously).” 

“We now expect the Bank of Canada to lower its overnight rate in April if not earlier. And considering markets are not fully pricing a rate cut so soon, the loonie’s depreciation could extend for another few months as investors adjust their expectations regarding central bank action.” 

“We now see USDCAD heading towards 1.37 by mid-year, coinciding with a further decline in oil prices, before recovering later in the year in synch with WTI.”