Camila Sutton was the fourth speaker at the Opening Remarks for the World Money Show at Toronto. She is Chief Currency Strategist and Managing Director at Scotia iTrade. Her talk is entitled "The Future Impact of The Canadian Dollar on Your Investments".
She says that the US economy is recovering and she expects the Fed to hike interest rates in quarter two of 2015. The Canadian economy is uneven, but it is recovering and the Bank of Canada will hike rates in the second half of 2015. Emerging Markets growth is disappointing and uneven.
The CDN$ has near term weakness pressured by a strong US$. In the mid-term the CDN$ will hold its own. In 2014 year to date, the CDN$ has weakness and lost 5.4%, but it increases your US based returns. If the CDN$ goes up this will lower your US returns. The CDN$/US$ range is currently huge and is at 11% for this year. She thinks that CDN$ will be at $0.91 by the end of this year.
There is positive US recovery, but negative global growth. The CDN$ is linked into global growth. The CDN$ is pro-cyclical and global growth is a long term driver of CDN$. Growth could fade again and there is a risk of a recession especially in the EU.
The outlook for Canada is good. The repeating pattern of downward revision of GDP growth of US is seen by the market to be a problem. ISM Manufacturing and non-manufacturing show strong growth The labour momentum is improving. Canadian is tied to the US economy at the hip. The improving US economy will help Canada. For Canada there is an uptick of growth in exports of which 70% go to the US.
In Canada financial stability is a risk. Household debt to income is too high. The housing prices are still rising. This combination equals a sign of financial stability risk. A crisis could hit Canada hard.
As far as interest rates go, the US has put off raising them until the second quarter of 2015. Any hike will be slow and cautious. There is a lot of divergent opinion amount the Fed members over interest rates and ranges from 0.5% to 4% by the end of 2016.
The Bank of Canada Governor Stephen Poloz favors a weak CDN$. When the Fed leads the Bank of Canada re interest rates the CDN$ tends to rally. Oil prices are collapsing and the spread between Canada and the rest of the worth is going lower.
FX managers are buying non-major currencies like AUS$ and CDN$ and this limits the fall of the CDN$. The CDN$ will weaken in the short term, but then will stabilize. FX managers have big diversions in what they think will happen to the CDN$.
The CDN$ will strengthen against the EU and Japanese Yen and even over the AUS$ but it will weaken compared to the US$. We import oil at higher prices than we export oil. We import in the East and export in the West. The Fed will lead the Bank of Canada in interest rate hikes. The Bank of Canada is sensitive to a strengthening CDN$ and is risk adverse. A risk in Canada is the Real Estate market and high household debt.
The outlook for China is stable but at risk.
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