The Canadian dollar has seen some wide moves over the past week, but appears to be trending lower relative to its U.S. counterpart heading into 2018, according to a currency analyst.
“We see (the Canadian dollar) weaker for the first quarter of this year,” said currency strategist Mark Chandler, of RBC Dominion Securities, pointing to “the disparity between the Bank of Canada and the U.S. Federal Reserve.”
The Bank of Canada kept its key overnight rate unchanged at 1.0 per cent on December 6 and remained cautious in the accompanying statement. Meanwhile, the U.S. Federal Reserve is generally expected to be set to raise interest rates by 25 basis points on December 13, said Chandler.
“The first quarter of next year still has some challenges for Canada, even though we’ve had very good job growth and decent output growth,” said Chandler.
Uncertainty over NAFTA renegotiations, together with housing regulations coming into force “is sufficient to keep the Canadian dollar on its back foot,” said Chandler.
RBC expects to see the Canadian dollar trading at around 75 U.S. cents (US$1 = C$1.3300) by the end of the first quarter. The currency was trading at roughly 77.75 U.S. cents (C$1.2862) on December 7.
Chandler added that any relative weakness in the Canadian dollar would be more a function of the U.S. economy doing well, rather than any major issues on Canada’s part.
“Ultimately that’s a good thing,” said Chandler. “If the U.S. grows we grow as well, but the direct effects are more powerful for them.”