BMO predicts loonie will hit 93 cents by end of 2011
Low commodity prices will help keep a lid on the loonie in the months ahead, the Bank of Montreal predicts in a new report.
In a report released Wednesday, BMO said it believes the Canadian dollar will not take flight until there is some improvement in the global economy.
The bank predicts the loonie could fall as low as 93 cents US by the end of the year, seeing little change until global growth picks up.
"Accelerating global growth will provide support to the Canadian dollar, pushing it back to parity by the end of 2012," the BMO report said.
While BMO expects that global growth will put the loonie back on par with its U.S. counterpart, the bank does not expect it to stay there in the long run.
Instead, the bank says that the dollar will weaken in the second half of 2013 when the U.S. Federal Reserve starts hiking interest rates. At that point, it expects the loonie to maintain a value of between 90.9 and 95.2 cents US going forward.
Don Drummond, former chief economist at TD Bank and currently a visiting scholar at Queen's University's School of Policy Studies, said the loonie's "default level" is between 80 and 85 cents US, when based on Canada's competitiveness compared to other countries.
Soaring commodity prices have been behind the Canadian dollar's recent meteoric rise above parity, he said. But uncertainty in the global economy is going to weigh it down going forward.
"So really this change in view is turning on a softer view for world economic growth, including in the emerging economies that are driving up commodity prices," Drummond told CTV News Channel on Wednesday afternoon.
The dollar was down more than a cent Wednesday, closing at 96.84 cents US.
The lower the dollar goes, the more attractive Canadian exports become. But a rising loonie increases costs to consumers and businesses who are buying imported goods.
"Of course a strong Canadian dollar goes a long way when you're travelling outside the Canadian economy. And anybody who imports machinery, for example, the price goes up," Drummond said.
"There's a whole set of winners and losers from it, somewhat balancing out."
With files from The Canadian Press