Canadian Dollar strengthens on bank statements
2022.12.07 08:25
Canadian Dollar strengthens on bank statements
Budrigannews.com – China’s COVID-19 restrictions, a major consumer of commodities, and the Federal Reserve’s possible decision to end its campaign to raise interest rates could lead to a rally in the Canadian dollar over the next year.
The has debilitated more than 7% against the U.S. dollar starting from the beginning of 2022, with practically all of the decay coming since mid-August.
The currency will rebound 1.1% to 1.35 per U.S. dollar, or 74.07 U.S. cents, in three months, compared to November’s forecast of 1.36, according to the median forecast of 35 currency analysts surveyed from December 1-6.
Then, it was anticipated that it would rise to 1.30 within a year.
Abbey Omodunbi, a senior economist at The PNC Financial Services Group (NYSE:), stated, “Our forecast for a weaker (U.S.) dollar in 2023 against major currencies, as the Fed switches gears and telegraphs an end to its tightening cycle, and a better growth outlook in Canada should bolster the Canadian dollar.”
In the third quarter, the economy of Canada expanded at an annualized rate of 2.9%, exceeding both analysts’ and the Bank of Canada’s expectations.
In an effort to contain inflation, the BoC has increased its benchmark interest rate by 350 basis points since March to 3.75 percent—the highest level since 2008.
When the central bank meets on Wednesday to set policy, the money markets anticipate at least another quarter percentage point of tightening.
Canada is a significant exporter of products, including oil. They have slowed down from this year’s peak, but China’s efforts to ease pandemic restrictions could boost demand.
According to market analyst Jay Zhao-Murray of Monex Canada Inc., “China’s re-opening following stringent COVID lockdowns will boost global growth, commodity demand, and risk sentiment.” Additionally, Zhao-Murray stated, “should help the loonie rally closer to fair value.”
Purchasing power parity (PPP), or the exchange rate that equalizes the purchasing power of various currencies, is one measure of fair value.
The IMF predicts that the USD-CAD PPP will rise by more than 8% from its current level to 1.25.
