The Canadian dollar is set to see modest weakening in the fourth quarter as the Federal reserve outguns the Bank of Canada (BoC). But the loonie is expected to gain ground in 2023 as the USD falls out of favour, economists at CIBC Capital Markets report.
CAD to weaken, before following the pack stronger in 2023
“The Fed’s hawkish announcement in late September and general risk aversion has sent the USD on a broadly stronger trajectory, and the loonie has depreciated as a result. There's likely more of the same to come, given a gap opening up in where policy rates will peak, and soft global growth favouring the USD and capping any upside for commodities.”
“A run to 1.40 is quite possible, and a rebound at year end should still see CAD in 1.38 territory.”
“In 2023, we see scope for a broad softening in the USD as the Fed pauses hiking below current market expectations, which will see CAD end the year stronger, with USD/CAD at 1.32.”
“The loonie could still end 2024 stronger, with USD/CAD at 1.28, helped by expectations for a pickup in global growth and commodity prices in 2025 that would benefit Canada's export sector.”