The value of the Canadian dollar is at risk of slipping below the threshold of 70 US cents shortly, anticipate economists at the National Bank.
Posted at 4:37 p.m.
“The Canadian dollar is struggling this fall” due to the deterioration of “fundamental characteristics” and “lackluster prospects” of the Canadian economy, reads a new analysis of the currency market led by Stéfane Marion, economist and chief financial markets strategist at National Bank.
The authors of the analysis also highlight the significant gap between the reference interest rate in Canada, lowered to 3.75%, and the target rate in the United States, which is still around 4.8%.
This difference of just over one percentage point results from the acceleration of rate cuts by the Bank of Canada compared to the more reserved position of the American Federal Reserve (FED).
“This significant divergence in monetary policies is now reflected in the widest spreads between Canadian and U.S. Treasury bond rates since the 1997-1998 Asian financial crisis, which is an important determinant of the exchange rate” between dollars Canadian and American, indicate the economists of the National Bank.
Meanwhile, “the US dollar remains strong, supported by a resilient US economy and relatively high interest rates compared to other developed economies. Therefore, we are increasing our exchange rate target [entre les dollars américain et canadien] from 1.41 to 1.45 Canadian dollars.
Converted into figures better known to the public, this exchange rate from the international currency market corresponds to a drop in the value of the Canadian dollar from its current level of 72 US cents to an anticipated level of 69 US cents during the first quarter of the year 2025.
If it proves true, such a drop in the value of the Canadian dollar compared to its powerful American neighbor would be the most accentuated since its last two passages around 68 American cents, which date back to the years 2020 and 2016.
Moreover, in a recent analysis of the currency market, Montreal analysts from the firm Scotia Capital, a subsidiary of Scotiabank, warned their investor clients of a risk of prolonged weakness in the Canadian dollar.
“We have been pessimistic on the Canadian dollar for some time, and we continue to see more downside than upside risks in the short to medium term,” reads the analysis overseen by Hugo Ste-Marie, director of portfolio strategy and quantitative analysis at Scotia Capital.
“A weaker dollar would not necessarily be beneficial for the Canadian economy. In the short term, a weaker currency would benefit Canadian exporters. But in the long term, it would not help Canadian companies invest more in imported machinery, equipment and technology that Canada sorely needs to solve its low productivity problems. »
Furthermore, this new episode of depreciation of the Canadian dollar to the threshold of 70 US cents promises to be costly for Canadians planning stays in southern destinations, where the US dollar is often the currency of payment for purchases of goods and services. .
