Loonie to Languish Longer: As the economy rebounded
in Q3, markets moved to price out the possibility of a further BoC
interest rate cut. That helped support the loonie even as oil started to
slide. However, that's changed in the past week, with poor September
GDP, November employment and October trade figures suggesting that the
economy continues to struggle. That's seen markets price in a greater
probability of another interest rate cut and seen the consensus trim its
forecast for Q4 GDP. But there's probably more downgrades to come. And
even though we don't forecast a rate cut, markets could certainly price
in a greater probability of one which would weigh on the loonie.
We recently changed our forecast to see a further depreciation in CAD to 70 cents (USDCAD 1.42) in Q1 2016.
Aussie Appreciation Overdone: The A$ has recovered
from below 0.70 against the greenback to around 0.74, and is one of few
currencies to be up against the greenback over the past month. It's true
that the Australian economy has held up better than we would have
expected so far this year, particularly in comparison to Canada, given
Australia's more resource-orientated economy. However, the trade deficit
in Australia is deteriorating as quickly as Canada's, and there's
likely room for sentiment on the Australian economy to turn again.
We see AUDUSD falling to 0.70 in Q1, although we no longer
see AUD depreciating against the loonie due to our downgraded assessment
for CAD.
