Analysts fear that the Canadian dollar may fail to pull its 2019 performance this year.
The Canadian dollar, which was the best-performing major currency in 2019, has been projected to lose steam, as the country’s resilience during 2019 global slowdown is expected to weaken.
The projection was done by global head of foreign-exchange strategy at Credit Suisse, Shahab Jalinoos. He cited the Bank of Canada as one of the factors behind the expected slowdown of the Canadian dollar.
According to him, the seat of the leadership of Bank of Canada, which would be vacant in June, would create uncertainty that would prevent the appreciation of the Canadian dollar.
Risk against Canadian dollar: The position is currently being filled by Stephen Poloz but the search for his replacement will cast doubt regarding the expected policies of the bank since a new governor will be taking over. This will “create some uncertainty that hinders CAD appreciation,” Jalinoos said.
He also noted that the Bank of Canada has a culture of making decisions that don’t reflect aggressive actions.
“The key risk is the BOC itself, which tends to talk more dovishly whenever CAD shows material strength,” Jalinoos disclosed, projecting C$1.28 for the Canadian dollar.
[READ MORE Canada invites 7,200 Candidates to apply for Permanent Residency in its November draws)
How Canadian dollar survived 2019: According to a report, the Canadian dollar gained 5% against the dollar (greenback) in a year that saw foreign-exchange volatility sink to record lows. It was disclosed that keeping borrowing cost steady by the Canadian Central Bank and the increasing commodity prices kept the currency afloat.
Bloomberg reported that the Canadian currency posted a monthly close well below its long-run trend support at C$1.3155, signalling that there’s more U.S. dollar weakness in the offing. It also stated that there might be little support for the dollar until it declines to C$1.28 even though chart patterns suggest firm support for the greenback in the low-to-mid-C$1.30 range.
Also projecting the drop of the Canadian dollar in 2020 is Bannockburn Global Forex. The company gave a forecast of C$1.295 for the end of 2020, higher than that of Credit Suisse.
This is according to a statement by the firm’s chief market strategist, Marc Chandler, who said, “The Canadian economy is weakening and the central bank will have to cut rates.” He added that, “Typically, in a weakening USD environment, CAD lags on crosses.” It is expected that the central bank will cut interest rates twice.
According to a report, gross domestic product in Canada shrunk for the first time in eight months and the country recently experienced its biggest job loss in a decade.
