Before it gets better, it’s going to going to get worse.
That’s the story for the health of the Loonie over the next two years, according to a January 26 report from TD Economics.
The bank forecasts falling oil prices combined with Canada’s weak economic performance relative to the resurgent U.S. will push the dollar down even further than the six-year lows it’s been hitting since last week.
“We now expect the Loonie to fall to a low of 75 cents U.S. in the first quarter of 2016, before gradually starting to appreciate again as the Bank of Canada prepares to hike interest rates,” the report said.
TD Economics said the expected hike in interest rates would eventually push the Canadian dollar back up to 85 cents U.S., but not until the end of 2016.
In his decision to lower the key interest rate to 0.75% from 1%, Bank of Canada governor Stephen Poloz specifically pointed to low oil prices as a driving factor.
“The drop in the price of oil has gone further and been more protracted than anyone predicted only a few short months ago,” TD Economics said in its report.
“The oil sector is an important piece of Canada’s economic puzzle, and the over 50% reduction in the price of oil will hit revenues in the sector hard.”
But TD Economics also noted in the report said there will be some added benefits to the plunging oil prices, noting the average household would save about $900 at the pumps in 2015 for a total savings of roughly $12.5 billion nationwide.
“Despite the offsets for consumers and businesses in energy costs, as net exporter of crude oil the hit to Canada’s economy from lower oil prices is a negative one,” the report said.
