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Rising U.S. Rates Will Hurt The Canadian Dollar This Year

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Rising U.S. Rates Will Hurt The Canadian Dollar This Year
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The Federal Reserve is expected to continue boosting interest rates throughout the remainder of 2017, and doing so is likely to hurt the Canadian dollar.

According to a Bloomberg report, the Bank of Canada isn't expected to match the Fed's rate hikes this year which will put pressure on the "loonie." It isn't so much that the Canadian economy is faltering as it is posting better-than-expected growth and encouraging retail sales and jobs numbers. But perhaps more important is the divergence in central banking policies.

"Canadian interest rates aren't going anywhere," Amo Sahota, director of risk management at San Francisco-based FX Klarity Inc, told Bloomberg. "Meanwhile, for U.S. interest rates we're still expecting two, if not three, rate hikes this year. As it stands right now, we still feel that the directional bias is going to be higher for the U.S. dollar."

How Low Can The Loonie Sink?

The Canadian dollar rose 0.4 percent on Friday to C$1.3364 per U.S. dollar after Canada reported strong jobs figures for March. Also contributing to the gain is the fact that the currency is directly correlated to the price of oil, which jumped higher as well.

But over the longer term, Macquarie Capital's North American economist David Doyle told Bloomberg the loonie will suffer from a slowdown in economic growth in the United States and China. He expects the Canadian dollar to weaken to C$1.53 by the end of the year.

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Posted-In: Amo Sahota Bank of CanadaNews Forex Federal Reserve Markets Movers Media Best of Benzinga

 

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