© David Tulk
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We do agree with the economists, since we are still looking for a cut in the overall rate to 50 basis points next week. That is really due to the fact the energy price shock that was mentioned has been larger than the Bank of Canada had forecast. The positive group assets that the Bank was hoping to help prevent the impact from lower energy prices, which has not really shown up.
Our last worst situation is where the upper gap will close over a longer horizon and with which the bank is comfortable. As a result, that will require the Bank of Canada to cut the interest rates next week. At that point we anticipate the Bank will remain on hold until the middle of 2017 just in recognition that the shock, which we have seen in the economy, has been quite serious and they will take a fair bit of time for it to rebound.
Analysts believe the rate cut will also probably keep Canada's exchange rate below 80 US cents through this year. Do you agree with this and what development do you expect from the Loonie throughout 2015?
Yes, we share the view with the analysts that the Canadian Dollar is expected to be fairly weak, forecasting something around 77 US cents by the end of the year. That is reflecting both slower economic growth in Canada, as well as the expectation that the oil prices will remain fairly low. Hence, it is a combination of factors that will hurt the Canadian side of things. We also expect to see a stronger Greenback against the wider range of currencies. Thus, the Loonie is caught in the crossfire to a certain degree as well.
What are your forecasts for USD/CAD and EUR/CAD for Q3 and for the end of this year?
For the USD/CAD currency pair our forecast for the end of the year is 1.33, and for the end of the Q3 we expect to see it at the level of 1.27. For the EUR/CAD we anticipate to trade at 1.27 levels for the Q3, and 1.28 for the end of the year.