“Canadian Dollar Outlook for 2023 Uncertain as Rate Hikes Ease: Experts Weigh In”
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Analysts at several major Canadian banks predict that the loonie will be worth nearly 77 US cents by the end of 2023, while it is currently closer to 75 US cents.
Experts say the outlook for the loonie in 2023 will depend largely on commodity prices, US dollar performance and whether central banks manage to avoid a wider recession. Photo by JONATHAN HAYWARD / FILES /THE CANADIAN PRESS
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The outlook for the loonie in 2023 depends largely on commodity prices, the US dollar’s performance and whether central banks manage to avoid a wider recession, experts said.
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The Canadian dollar recently rose to its highest level in more than two months against the US dollar, which strengthened on Friday after an unexpectedly stronger jobs report.
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However, analysts are predicting further US dollar weakness in 2023. CIBC said in a Jan. 23 report that the currency is likely to weaken in 2023, which could lead to Canadian dollar strength in later quarters.
Analysts at several major Canadian banks predict that the loonie will be worth nearly 77 US cents by the end of 2023, while it is currently closer to 75 US cents.
But not everyone agrees. Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management, doesn’t think the US dollar will weaken while he sees commodities, a big driver of the loonie, weak in 2023.
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In 2022, the main drivers of the loonie — interest rates and commodities — have been highly volatile, Burkett said. But the dollar itself didn’t move because its main counterpart, the US dollar, underwent similar moves, particularly in the direction and pace of interest rates.
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But if economic conditions and policy decisions diverge between the two countries in 2023, that could affect the exchange rate, Burkett said.
“I see Canada in a weaker position to start the year than the US, both because of the commodity outlook and because I think the impact of higher interest rates is much more significant in Canada than in the US,” Burkett said.
Michael Greenberg, senior vice president and portfolio manager at Franklin Templeton Investment Solutions, said the Canadian consumer is somewhat weaker than the US consumer due to debt and the housing market, making us more sensitive to interest rates.
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Greenberg said if an economic downturn driven by central bank policies is worse than expected or hoped for, it would weaken the loonie, while a soft landing in the economy would mean Canadian dollar strength.
For most of the past year, the Loonie has held up relatively well against most of its international peers, Greenberg said.
“We’ve done a lot better than the euro and the yen, but… we haven’t done as well against the US dollar,” he said.
There was a slight shift in the last quarter, he said, as it became clear that inflation had peaked after months of aggressive rate hikes by the US Federal Reserve and Bank of Canada, which were ahead of other countries in tightening. Other markets like Japan and Europe changed their own policies to fight inflation and their currencies took off, Greenberg said.
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Meanwhile, the strong commodity prices that had supported the loonie in early 2023 were beginning to weaken, he said.
The Canadian dollar’s outlook for the year is heavily dependent on external developments, with commodity prices and valuation potentially positive for the dollar, Scotiabank said in a report in early January.
The bank said while US dollar weakness later in the year would give the loonie a boost, the Canadian dollar is expected to underperform against many of its G10 counterparts this year.
Greenberg believes the Canadian dollar will be relatively range bound in 2023, with some added economic certainty removing some of the risk.
“We should perhaps expect a little less volatility,” he said, adding that while investors still have some opportunities to take advantage of the madman’s ups and downs, consumers making decisions about shopping or traveling in the US can shouldn’t worry too much the currency makes big moves throughout the year.
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Source: theprovince.com
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