Canadian Manufacturing

Loonie may hit 0.75 cents US before an upswing begins

In the following weeks the mighty greenback should extend its appreciation a little bit more

TORONTO—As predicted in my January 5th 2015 update, the U.S-Canadian dollar pair has reached our target of 0.8050 on January 26, and then, unfortunately, passed our target and reached CAN$0.7815 on January 30. The rate os of February 6 was CAN$0.8033.

The Bank of Canada’s January 21 decision to lower the overnight interest rate to 0.75 per cent was met with some surprise. Economists had predicted the need for an interest rate reduction, but the timing of this decision has surprised many, including myself.

Appreciation of the U.S. dollar tempers the inflationary forces of the growing American economy. Everybody in the U.S. is keenly watching to see if the Fed is going to raise the interest rates, and the Fed is using the high value of U.S. currency to buy some time before it will consider such a step.

After close inspection however, low oil prices provide tremendous support to the American economy, as the low price of oil removes inflationary pressures. The low price for crude oil is a miracle pill for the whole U.S. economy.

In my opinion, the U.S. dollar will reach approximately CAN$0.7550 before a corrective trend will begin. However, both currencies are in a highly volatile stage with corrective fluctuation possible at any time. But continued moderate U.S. dollar appreciation should allow for more moderate decline of the loonie.

Once the correction ends—possibly at about CAN$0.7950—our loonie will start declining once again and then I will post another medium term target.

The US dollar value has declined in last 2 weeks in EUR/USD which has helped to increase the value of our loonie. The crude oil price has also appreciated a little bid. Unfortunately, the increase in oil prices has rather a rather temporary nature. Traders are looking for a suitable moment to shorten the price.

Darek Wozniak is president of JW Investrade, a currency exchange consulting firm in London, Ont. He may be reached via email here.

Related Posts from the network