It appears the loonie’s trajectory isn’t doing any favours for Canadians craving some cross-border shopping as travel restrictions between Canada and the U.S. look poised to loosen further in the coming weeks.
A new forecast from an RBC economist says the Canadian dollar’s highs for the year are now in the “rear-view mirror” as the U.S. Federal Reserve (Fed) signals its readiness to raise its overnight rate sooner than expected.
“After tumbling early in the pandemic, the Canadian dollar went on its strongest run in more than a decade, rising to a six-year high of 83 U.S. cents in early June. The run-up made it the best-performing advanced-economy currency through the first five months of 2021,” senior economist Josh Nye said in a report released Monday.
“Over the past six weeks the Canadian dollar has reversed some of its earlier gains, falling below 80 U.S. cents.”
The bank sees the loonie remaining within the range of 80 U.S. cents for the second half of 2021 before weakening slightly in 2022.
The Canadian dollar was trading at 78.32 U.S. cents — down 1.18% — as of Monday 8:30 a.m. PT.
A higher loonie helps with business investments through the importation of expensive machinery and equipment. For consumers, it also means cheaper goods and helps push back against inflationary pressures.
But a strong Canadian dollar also serves as a drag on exports.
“Canada’s central bank still stands out as relatively hawkish [more likely to raise interest rates] but some of its peers are starting to catch up. The prospect of higher rates attracted investors to the Canadian dollar, but a change in tone from the Fed in June … has supported the U.S. dollar at the Canadian dollar’s expense,” Nye said.
“This process likely hasn’t fully played out — we think the market is overpricing rate hikes in Canada next year and underestimating the odds of a move by the Fed.”
