Short-term outlook for loonie and U.S. dollar

Clients travelling to the U.S. for summer vacation shouldn’t expect the loonie to be trading especially advantageously against the greenback, as the Canuck buck hasn’t much budged against U.S. dollar strength.

“The exchange rate could hover around US$0.79 during the summer,” says a Desjardins forecast report.

The firm warns, however, that the risk from protectionism, “which may cast a dark shadow over the economic outlook and the Canadian currency,” must be monitored.

Otherwise, the firm expects the loonie to “remain relatively unscathed in the short term if the Canadian economy stays the course and the BoC announces an interest rate hike in July.”

Against several other currencies, including the euro, the loonie has gained ground.

“Higher oil prices helped, although a decrease was recently recorded,” says the report. And the loonie also lagged after U.S. tariffs on steel and aluminum were announced.

Read: Canadian and U.S. stocks to watch as trade heats up

Though Canadian economic data remain positive, the report says that “Canada’s economic outlook continues to be shrouded in uncertainty due, in particular, to the threat of protectionism.”

Read: Investing during tough times for trade

Desjardins forecasts a CAN$/€ exchange rate this summer (Q3) of $1.51.

U.S. dollar to run out of steam?

The U.S. dollar has shown strength in recent weeks, supported by the improved outlook for U.S. growth and a surge in yields.

More recently, the U.S. dollar seems to have benefited “primarily as a safe haven in the face of renewed uncertainty among emerging countries and in Europe,” says the Desjardins report. As fears have calmed in these regions, the greenback’s momentum has stalled.

The dollar will also be challenged by “the twin deficit problem,” says Desjardins, referring to the trade and budget deficits faced by the U.S.

For fuller forecasts for currencies, as well as for retail interest rates and asset class returns, see the full Desjardins forecast report.

Also read:

Causes and effects of Canada’s lower growth