© David Watt
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I do have another rate cut in my forecast for October, which I would say is quite likely; however, I am an outlier in that, as I am probably the only one calling for a rate cut this year. That might be an aggressive call, but I have had it for a long period of time because I just do not believe that the Canadian economy has sufficient momentum even with the fiscal policy that we have got. Thus, I believe that more policy stimulus is required.
Some analysts say that the launch of new Canada-China relations will only increase the trade imbalance between these countries, not favouring Canada. Do you share this point of view or not? Why?
At this point, I take a more sanguine view on trade: I think that we have got a trade imbalance with China because they produce stuff we want to buy and we either do not produce goods they want to purchase or we do produce them, but we cannot get it to Chinese consumers since there are some structural issues: it is easy to buy T-shirts from China but very difficult to get the Canadian oil to China. Canada has not put in place the infrastructure to be able to take advantage of Chinese demand for what Canada produces. Hence, I think we do need to improve our trade backdrop with China, as it has periodically indicated that it would like to do more and better trade with Canada and have closer relation. So, to my mind, it is up to Canada to make clear that if China is the key driver of the global economy, we have to change the structure of our economy to be able to take advantage of those opportunities or, in general, to able to get our natural resources to where the demand is going to be, which is largely China.
What will be the major drivers for the Loonie this year?
There are going to be two main drivers for the Canadian Dollar this year. First one is going to be oil prices and the other one will to be what happens with the fiscal policy. We have a rate cut as an idea for more stimulus; however, we could get more fiscal policy. If we do get a more aggressive fiscal package, we would start seeing long terms rates beginning to rise. Thus, my base-case scenario is that higher oil prices and longer-term interest rates would provide support for the Loonie against the US Dollar.