While the Canadian economy is showing signs of strengthening after a rocky start to the year, BMOs predict the loonie won’t return to the 85-cent mark until late 2016.
Firmer oil prices and a steadier U.S. dollar have pushed the Canadian dollar to about US$0.82 in June since falling to a six-year low of US$0.78 in March.
But in a June 22 note to investors, BMO senior economist Sal Guatieri said the loonie would likely fall further this fall when the U.S. Federal Reserve is expected to hike its benchmark rate.
This wouldn’t be bad news for the Bank of Canada, which has been looking for a lower dollar to stimulate exports in the wake of the collapse of oil prices.
“By late 2016, however, higher oil prices and tighter Bank of Canada policy should propel it toward 85 cents,” Guatieri wrote.
He added that despite weak oil prices, a struggling manufacturing sector and soft retail sales, the real estate market has helped the economy remain resilient in 2015.
“Vancouver and Toronto markets are on fire, posting benchmark price gains of more than 10% for single-family homes and 4.5% for more-plentiful condos,” Guatieri wrote.
“Strong demand from international migrants and young millennials, an influx of foreign wealth, and low mortgage rates are driving the two markets.”
