Dollar to hit 76 cents (U.S.), CIBC says
By SAHM ADRANGI
Globe and Mail Update
Investors should expect the loonie to climb as high as 76 cents (U.S.) by the end of the year, in response to a continued depreciation of the U.S. greenback, a Canadian Imperial Bank of Commerce report says.
"It's too soon to close the chapter on U.S. dollar depreciation," Avery Shenfeld, a senior economist at CIBC World Markets, said in a statement.
The Monthly FX Outlook report forecasts a weaker greenback on the grounds that the Bush administration is "welcoming the boost to American trade prospects from a cheaper currency." The burgeoning U.S. current account deficit and cuts in both taxes and interest rates should also contribute to the drop, the report says.
Since January, the loonie has risen from 63.81 cents (U.S.) to 74 cents in early May. As of 3:23 p.m. EDT, the dollar traded at 72.86 cents. Over the same period, the greenback has dropped to .84 euros from .96 euros.
While the loonie has stalled over the past week, dropping from 74.04 cents last Thursday, Mr. Shenfeld expects it to recover and surpass its previous early-May year-high.
Currency analysts have been carefully monitoring the words of U.S. Treasury Secretary, who in a recent comments suggested the United States has abandoned a strong dollar policy. At a meeting of finance ministers, John Snow downplayed the greenback's recent fall as a "fairly modest realignment of currencies."
According to CIBC, the dollar's slide against the euro has been more steep than its decline relative to a weighted basket of currencies, partly because several of its non-European trading partners — particularly China and Japan — have intervened to prevent their own currencies from appreciating.
Accordingly, the greenback may yet have room to depreciate against those currencies.
On the Canadian end, the report expects the Bank of Canada to stand pat in the near term.
With Canadian interest rates higher than those south of the border, capital should continue to flow up from the United States. With Europe considering its own rate cuts, Canada may soon also begin stealing capital away from across the Atlantic.
For exporters and manufacturers, the higher dollar could make cut into profits, reducing foreign demand for Canadian-made goods and increasing domestic demand for foreign ones. For many of these companies, "paying their wages in 63-cent Canadian dollars" was a lot easier, Mr. Shenfeld says.
Earlier today, Statistics Canada reported the highest current account surplus in seven quarters, a further testament to the strength of the loonie.
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