We regularly get questions from clients about the CAD/USD exchange, and recently, the questions have become more frequent.

We polled a host of fund companies for their thoughts on where the Loonie is headed. For reference, the CAD / USD traded at $1.3231 or $0.7558 USD / CAD, as of September 5, 2019.

The consensus viewpoint is that in the medium-term, the Canadian Dollar will likely soften compared to the Greenback, with the CAD / USD exchange rate likely rising. A US Dollar could soon cost between $1.3699 and $1.3889 Canadian.

Exports – of resources, oil, auto parts, etc – is a key pillar of the Canadian economy. Too strong a Loonie hurts our exports because international importers have to pay more for Canadian goods. Thus, in the long run, the Canadian economy benefits from a lower CAD.

Here is a summary of the various feedback we received:

• CI Investments: “Interest rate differentials had become and continue to be the most important driver of USD/CAD at the moment. To that extent, a change in the Bank of Canada’s stance towards monetary policy losing (rate cuts) should weigh on the currency although interest rate differentials (both 2-year rates and 1yr forwards) currently suggest that USDCAD should trade well below 1.30. Our bias remains for a slightly weaker CAD over the medium-term.”

• Dynamic Funds: “In the currency market, there has been a general flight to safety.The reserve currencies such as the US dollar and the Yen have been a favoured place to park money at the expense of riskier EM currencies or economically leveraged developed market currencies like the Australian Dollar and Canadian Dollar. We expect these trends to continue until the economic trajectory for the global economy begins to improve. At this stage, the weak leading economic data suggest that the USD is likely to remain firm.”

• Fidelity Investments: “(Bank of Canada) BoC analysis in the July Monetary Policy Report projected that Canada could be hit twice as hard as the global economy as a whole upon a full-blown trade war, with the Canadian Dollar depreciating by roughly 25% in response, underscoring Canada’s vulnerabilities in the current environment. We continue to expect the Canadian dollar to depreciate over the medium-term.”

• Invesco: “(We feel) that continued upward pressure on the USD should result as money continues coming into the US bond market searching for any available yield. That being said, CAD should experience some flow as overseas bond investors seek yield so USD/CAD should be more stable.”

• RBC GAM: Projects $1 CAD → $0.73 USD in the medium-term, as international funds flock to the Greenback, the world’s safe-haven currency.

For those holding US currency who are looking to convert to CAD, you might consider waiting since most analysts project a strengthening USD versus the CAD over the medium-term.

Conversely, if you hold CAD and are looking for the right time to convert to USD, you may find that waiting too long will result in a less favourable exchange rate over the medium-term.

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.