Loonie will rebound to parity in 2014: CIBC

CIBC sees brighter days ahead for the Canadian dollar, which has been under pressure recently amid continued weakness in the global economy.

A new report from CIBC World Markets says the loonie should stay within a couple of cents of current levels for the rest of the year, then rebound to parity with the American greenback by end of 2014.

 “As we expected, the Canadian dollar has been a casualty of disappointing global growth this year, moving even earlier than we forecast to our target of five cents weaker than parity,” said CIBC chief economist Avery Shenfeld, who co-authored the report. “While normal volatility will no doubt see days with the Canadian dollar a cent or two weaker than today’s levels, we view the bout of Canadian dollar softness this year as an opportunity to buy it ahead of a likely appreciation in 2014.”

Other forecasters have predicted the value of the loonie will continue to decrease and fall as has the Australian dollar, which moved from US$1.06 in mid-January to 0.91 cents in the first week of July. For example, TD Bank predicted in May that the Canadian dollar could hit as low as 90 cents US by the end of the year and early 2014. It said the currency will be hurt by Canada’s weaker economic performance than the United States and lower commodity prices which are expected to remain weak because of slower-than-anticipated growth in China.

The CIBC’s Shenfeld, meanwhile, expects the Canadian dollar’s appreciation next year will be driven by a more favourable external environment, particularly growing strength in the U.S. economy. CIBC has forecast that growth in the U.S. will increase to 3.3 per cent next year from 1.8 per cent in 2013, largely on further improvement in homebuilding and a “lower drag from fiscal policy.”

“The Canadian dollar should be a beneficiary of better U.S. and global growth next year,” Shenfeld said, adding that he doesn’t expect the Federal Reserve will completely stop its policy of buying Treasury bonds, known as quantitative easing, until the U.S. economy is strong enough.