There are several reasons the loonie could continue to strengthen against the U.S. dollar, says CIBC economist Avery Shenfeld in a recent research note. One of these is “there’s no imminent threat of a Bank of Canada rate cut,” he adds, “given the fiscal stimulus [that’s] on its way and [the fact that] GDP growth for Q1 is tracking above 2%.”
As a result, importers shouldn’t lock in today’s rate, he suggests. Instead, “[they] might do better with a zero cost option structure that gives up participation beyond, say an 80-cent exchange rate at year-end, but [that] protects against a move to weaker than US$0.74” for the loonie.
Shenfeld notes, “[For] the economy to continue to lever up exports as a replacement for [both] oil industry capital spending and a [boom in] home building, even $60 oil shouldn’t entail more than a few cents stronger from here.” Read more.
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