CAD to USD: Canadian Dollar Strength to Force Rate Lower to 1.30, say Lloyds
An update on the Candian Dollar from forecasts at Westpac, Lloyds and Swissquote Bank.
- Lloyds backing Canadian dollar to push USD/CAD lower
- Westpac favour Aussie over Loonie
- Swissquote staying bearish on CAD longer-term
Analysts at Lloyds Bank expect the Canadian Dollar, or “loonie” as it is also known, to continue appreciating in the longer-term as the price of oil recovers and the domestic economy shows further improvement.
“We envisage the risk outlook remaining stable and the rise in oil prices continuing, extending toward $55/barrel by year-end. Should these conditions materialise, CAD should strengthen further.”
Says the research note from Lloyds, which goes on to highlight the recovery in the domestic economy:
“In addition, the domestic outlook is also providing positive momentum, with recent GDP growth of 0.8% exceeding expectations of 0%.”
Against the U.S Dollar the loonie has performed especially well in 2016, with USD/CAD falling from a high of 1.4689 to lows of 1.3260.
This has been predominantly as a result of a lowering in expectation of the Federal Reserve hiking interest rates, which has weakened the dollar.
The Bank of Canada's reluctance to lower interest rates in January, however, was another important factor supporting the CAD side of the pair.
Lloyds see major risks to the currency coming from a period of, “sustained downward pressure on oil prices, as this has acted as a significant negative shock in recent months, and a prolonged period of “risk-off” trading – but we view both as unlikely. “
As far as their target goes they say:
“On balance, we anticipate moderate CAD strength, toward 1.30 through 2016.”
Westpac’s Callow, Less Optimistic
In a note analysing the AUD/CAD pair, Sean Callow at Westpac argues the Aussie is set to outperform the Canadian Dollar in 2016.
He thinks that Bank of Canada forecasts that growth will “pick up to above potential in Q2, 2016.” Will lead to disappointment, saying, “We believe they will again be disappointed.”
The continued low price of oil remains an obstacle to more sustained growth in Canada:
“The multi-week outlook for prices of key commodity exports is not very promising for either Australia or Canada but we suspect CAD is not pricing enough risk for Canada’s economy.”
Data from Futures Exchanges is showing that speculators are still sticking to their overall net bearish positions against the Canadian dollar, despite limited profit taking:
“Leveraged funds have covered CAD shorts from time to time but overall seem convinced that USD/CAD is heading higher.”
Swissquote Bearish Longer-term
Technical analysis from online lender Swissquote remain bearish the Canadian dollar in the long-term.
In an analysis of USD/CAD, they argue that the original break above 1.3065 was key in determining the long-term outlook:
“In the longer term, the break of the key resistance at 1.3065 (13/03/2009 high) has indicated increasing buying pressures, which favours further medium-term strengthening.”
They don’t see any strong resistance until the 1.49 highs, but see support at 1.2832, the October 2015 low.
In the shorter term, however, swissquote are more bearish:
“USD/CAD's momentum is bearish. Selling pressures are still important.”
Currently the pair is “bouncing back” a little too:
“Yet the pair is bouncing back from support at 1.3262 (year-low). Hourly resistance is given at 1.3377 (07/03/2016 high) while stronger resistance can be found at 1.3587 (29/02/2016 high).”
Overall, the pair is “Expected to show continued weakness.”
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