[size=14.0000400543213px]The Canadian dollar is hovering just above 80 cents US today, but continues under pressure as oil prices fall and the outlook for the economy dims.
Analysts are predicting it will continue its downward trend over the short-term, with TD Bank predicting a 75-cent loonie in the short term and Goldman Sachs saying it could go as low as 71 cents US.
After closing yesterday at 80.23 cents US, the Canadian dollar dipped in overnight trading to 80.17, but was up this morning at 80.63 cents US.
In its economic outlook released Monday, TD Bank said it has downgraded its outlook for the dollar because of continuing weakness in oil prices. It expects a 75-cent dollar by the first quarter of 2016.
Rahim Madhavji, an analyst at Knightsbridge Foreign Exchange in Toronto predicts a 75-cent loonie in three to six months.
The strong U.S. dollar, powered by an improved labour picture and recovering economy, has helped to create a negative outlook for the loonie, he told CBC News.
The quick drop in oil prices from $100 last year to the $45-level now is putting pressure on the dollar, he said.
“If oil goes below $40 a barrel, I would feel the Bank of Canada will cut rates [again] and that’s a secondary factor that will hurt the loonie,” Madhavji said.
“It’s going to make a 75-cent loonie well within reach.”
Surprise rate cutThe Bank of Canada shocked the markets and caught both investors and the big banks by surprise with its rate cut last week, he said.
“The Bank of Canada not having a clear path of how it will proceed breeds uncertainty,” he said.
There could be a “butterfly effect” from events in China or Europe where economies have turned downwards that would create further expectations of a rate cut in Canada and hurt the dollar, he said.
A low dollar makes Canadian exports more competitive and the stronger U.S. economy will improve demand. But it could take a year for the benefit of a declining dollar to take effect, Madhavji said.
He forecasts a recovery in the loonie to the 87-cent level if oil bounces up closer to $60 US a barrel.
Goldman Sachs is predicting a 76-cent Canadian dollar in the near term, but says the loonie will continue its slide and could fall to 71 cents US by 2017.