© Charles St Arnaud
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How do you evaluate the performance of the Loonie during the Q2 of 2016?
To my mind, the performance of the Loonie in the Q2 will depend mainly on what will happen to oil prices. What we have seen in the Q1 is that a lot of a rebound in the value of the Canadian Dollar has been driven by the rebound in oil prices. Over the past quarter, we have seen a lot of reversals of short positions in the oil sector, providing support for oil prices and explaining why oil has been rebounding to almost $40 per barrel. The risk hides in all these talks about production freeze by major oil producers, which could push oil prices slightly higher; however, it still does not solve the issue that has brought prices of oil so low. Besides, the persistent oversupply in the oil market is putting some downwards pressure on oil, which, in turn, explains why the Canadian Dollar has been depreciating so much in the recent quarters.
What will be the major drivers for CAD throughout the same period?
I believe it will certainly be mainly oil prices. Our estimation is that about 75% of movement in the Canadian Dollar can be explained by changes in oil prices.
Another factor could be any change in rate expectations in the US and Canada. At the current moment, we expect that the Bank of Canada will stay on hold solution given the influence of Canadian rates on the Dollar, while on the US side we expect the Fed to hike by 25 basis points in June and another time in December. Thus, if we see that happening, we will be able to observe some depreciation of the Canadian Dollar versus the US Dollar.
What are your forecasts for AUD/CAD, EUR/CAD and USD/CAD for the Q2 of 2016?
Our current forecast for the Canadian Dollar against the US Dollar is that it should gradually move higher, reaching 1.40 by the end of the Q2. As concerns the Aussie, we think it is overvalued at the moment. We expected to see a correction in iron ore prices, which should make the Australian Dollar much weaker; therefore our expectation is that the Canadian Dollar should perform better than the Australian Dollar in the Q2. Speaking about the Euro, even though we see some depreciation in it, the decline in the value of the Canadian Dollar is likely to be more substantial; hence, we anticipate the EUR/CAD currency pair to move slightly higher in the Q2.