David Tulk, Chief Canada Macro Strategist at Toronto Dominion Bank, on Canadian economy and CAD

Source: Dukascopy Bank SA
© David Tulk
Despite the slowdown, Prime Minister Justin Trudeau's campaign promise to inject the Canadian economy with fiscal stimulus has received plenty of criticism, in large part because the projected budget deficit has ballooned to $18.4 billion for next fiscal year. Do you believe in the necessity of these measures?

To my mind, it is an important complement to monetary policy that has proposed a lot of stimulus to the economy. Moreover, if you look at the experience of other economies around the world, namely the Euro zone as well as the US, you could see the merit of having more activist fiscal policy; hence, I am not as concerned about levels of debt.

From a financial standpoint, Canada is well supported; therefore, the increase that we would see in the deficit is, I suppose, an appropriate response to low interest rates and the need for more fiscal stimulus to complement monetary policy.

Growth prospects for this year remain diminished with companies rattled by a plunge in commodity prices and a slow recovery in manufacturing, and consumers restricted in their spending by record debt loads. That leaves policy makers open to adding more stimulus.  Do you expect that governor Poloz will cut interest rates after holding off on a cut in January to assess the recovery's strength?

I do not believe governor Poloz will cut interest rates. In my opinion, what we have seen from the governor is a "wait and see" patient approach to monetary policy, while the outlook is as much as it is fairly weak, basically in line with what the Bank of Canada had forecasted. Thus, that makes me of the view that what you will see is more patience on the part of the Bank: they will just wait until we get the announcement of fiscal stimulus and then try to see if the weaker currency will be able to help motivate more strength in exports, which is something we are looking at.

What will be the major drivers for the Loonie this year and what are your forecasts for EUR/CAD, USD/CAD and CHF/CAD for the same period?

I suppose, the main drivers over the short term will certainly be the development in oil prices as well as risk sentiment more generally. What I would look at in terms of a specific forecast, is the USD/CAD to trade roughly around 1.36 by the end of the year, which is a little bit stronger than the current level. However, that is due in equal parts to a little bit more weakness in Canada and some of the increase in oil price that we have recently seen. Furthermore, we anticipate there being more US Dollar strength.

By the end of the year, we are looking for the EUR/CAD to sit around 1.47, which will show more weakness in terms of the Euro, since we think that would also reflect perhaps more activity from the ECB, while on the Canadian side we see a backdrop for economic growth as well as for monetary policy. 

As concerns the CHF/CAD, we see it settling at around 1.34; however, I would not be surprised to see it move a little bit higher to the 1.36-1.37 area.

Actual Topics

Subscribe to "Fundamental Analysis" feed

Subscribe
To learn more about Dukascopy Bank CFD / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
For further information regarding potential cooperation,
please call us or make callback request.
To learn more about Dukascopy Bank Binary Options / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
To learn more about Dukascopy Bank CFD / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
To learn more about Crypto Trading / CFD / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
To learn more about Business Introducer and other trading related information,
please call us or make callback request.
For further information regarding potential cooperation,
please call us or make callback request.