Scotiabank strategist sees loonie holding between 72 and 74 cents US amid broader US asset decline
The Canadian dollar could trade in a higher range of 72 to 74 cents US in the short run due to a weakening US dollar, according to Shaun Osborne, managing director and chief FX strategist at Scotiabank.
“We can see that there’s been a pretty big shift in market sentiment regarding the dollar outlook over the last little while,” Osborne said in an interview with BNN Bloomberg.
He noted that this includes the Canadian dollar, which appears to be moving into a short-term range of 72 to 74 cents.
The loonie was trading around 73 cents US on Friday afternoon. Osborne said that over the short term, it may “pick up a bit of ground,” reflecting general softness in the US dollar.
He also noted, “We are looking for end of year forecast of 72 cents for the Canadian dollar, but we’re already trading very close to that right now.”
Osborne described current conditions as an “unusual situation,” highlighting recent broad weakness in US assets including equities, bonds and the greenback.
“That’s kind of unusual for markets generally because typically when we see, for example when equity markets weaken, the US dollar as a safe haven asset, typically…it strengthens in response to those kinds of situations,” he said.
He noted that this trend is significant for Canadian investors holding US dollar-denominated portfolios.
“We’re not seeing that right now. The Canadian dollar is actually strengthening,” Osborne said.
He explained that when equity markets weaken, this strength amplifies the negative returns Canadian investors experience from US stock portfolios if they are not hedged for FX risk.
According to Osborne, past instances of US dollar underperformance have generally stemmed from long-term structural issues.
“So big deficits usually worry investors and that has in the 80s and particularly in the early 2000s, twin deficit story was a big driver of dollar weakness,” he said.
