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The Canadian economy will continue to underperform over the next year, relative to the U.S. and on a global scale.

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That’s due to our high level of consumer debt, and to weak oil prices and exports, says Luc de la Durantaye, managing director of asset allocation and currency management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.

Even though the U.S. continues to recover slowly, he adds, it will still outperform Canada. As well, the American dollar will outshine the weak loonie.

Read: Look outside Canada for better returns

“Interest rate differentials are an important element of currency movements,” says de la Durantaye. So, “the Canadian dollar [will] continue to be under pressure relative to the U.S. dollar, given the interest rate differential continuing to move in favour of the U.S.”

Read: Business leaders are pessimistic about economy

The U.S. Federal Reserve didn’t hike rates in September, he notes, but “if we continue to see stabilizing economic data, there’s a chance the Fed will [hike later]. That would be supportive for the U.S. dollar.”

Further, he explains, “We don’t expect oil prices to rebound. There’s still excess supply, and that excess supply will take time to change. So you will see oil prices weighing down the Canadian dollar.”

Read: Wait for commodities opportunities

On the upside, there’s one area where Canada will excel, says de le Durantaye. He predicts Canadian bonds will outperform U.S. bonds over the next 12 months, especially due to the sluggish recovery in the U.S.

Read: Understand duration for better bond returns

Looking at equity markets, de la Durantaye expects both the U.S. and Canada will face challenges. “U.S. corporations face competitive pressure from a strong U.S. dollar [and] because of the Federal Reserve wanting to raise interest rates. So U.S. companies will face a central bank that wants to gradually tighten.”

Plus, the valuations of U.S. equities are high, leaving little room for growth this year. Meanwhile, on the domestic front, we’re facing “weak economic activity and weak commodity prices, [and] the resource sector is still a large component of the Canadian market.”

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If Canada continues to struggle, says de la Durantaye, “The Bank of Canada may have to continue to consider lowering the central bank rate. That’s going to keep a damper on yield.”

However, both the U.S. and Canada will lag global markets, he predicts. “We’re neutral on both Canada and the U.S., relative to international and emerging equity markets.”

Read:

Consider emerging market debt, equities

How negative rates affect economies

How the Bank of Canada is failing investors

How the TPP will benefit Canada

Originally published on Advisor.ca

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