According to RBC Economics, the strongest performance of the Canadian dollar in recent years is now “probably in the rear view mirror.”
A report by Josh Nye, chief economist at RBC, indicates that the loonie peaked in June, when it hit 83 cents US.
Nye described the rate as a “high point for 2021”.
“After falling at the start of the pandemic, the Canadian dollar experienced its strongest advance in over a decade, hitting a six-year high of 83 cents US in early June,” Nye wrote in a report. Monday July 19.
The bank’s economist went on to note that “the rise in power has made it the best performing advanced economy currency in the first five months of 2021.”
However, Nye said the Canadian dollar reversed some of his earlier gains.
The loonie has fallen below 80 cents US over the past six weeks.
âWe see it staying in the US 80-cent range in the second half of this year and weakening slightly in 2022,â Nye wrote.
The Bank of Canada Daily Digest for Monday, July 19 shows that a Canadian dollar is worth 78 US cents.
In other words, it takes 1.2 Canadian dollars to buy a US
In the report, Nye wrote that the US Federal Reserve signaled it may hike rates “sooner than expected.”
As a result of this move, “sentiment has shifted in favor of the US dollar and away from the loonie.”
In addition, “the increase the Canadian dollar has received from the rise in the prices of oil and other commodities could wane as well as investor appetite for riskier assets.”
Nye recalled that the price of West Texas Intermediate, an oil standard, has risen from around US $ 40 per barrel in the second half of 2020 to over US $ 70.
“We expect oil prices to remain within their recent range through 2022, acting neither as a tailwind nor a headwind for the Canadian dollar,” the bank’s economist wrote.
Nye noted that Canadian exporters might think the Canadian dollar is “still too high”, affecting the country’s competitiveness in the international market.
However, the economist argued that the current rate is “within the range of estimates of fair value – and far from the above-parity levels that ten years ago raised fears of Dutch disease.”
Dutch Disease refers to a paradoxical phenomenon in which the growth of one sector, especially that of natural resources, causes the country’s currency to appreciate, which in turn hurts others, especially manufacturing.
âOn the contrary, labor and input shortages are probably bigger headaches for Canadian exporters,â Nye wrote.