#1 BEST OVERALL FORECASTER - CANADA 8‑Month …

[Pages:3]ECONOMIC STUDIES | MARCH 28, 2018

FX FORECASTS

The Canadian Dollar Recovers after an 8Month Low

#1 BEST OVERALL FORECASTER - CANADA

HIGHLIGHTS

ff The Canadian dollar has been under pressure since the end of January. It reached an 8month low at close to US$0.760 (C$1.31/US$) on March 19. The exchange rate has slightly increased since then, and is now closer to US$0.775 (C$1.29/US$). This new spurt is due to rising oil prices and renewed optimism on the future of the North American Free Trade Agreement (NAFTA). Recent inflation figures have also shored up the loonie, and annual price increases of over 2% point to further key interest rate hikes in Canada. That balances out some more mixed economic data and the cautious tone taken by the Bank of Canada, which is still concerned by residential market adjustments as the recent mortgage restrictions kick in.

ff The U.S. dollar has been negatively affected by recent uncertainty over the announcement of protectionist measures in the United States. Investors seem to believe that those measures would be harmful to the U.S. economy. The greenback did not react strongly to the key rate increases in March, yet the Federal Reserve (Fed) appears to be more optimistic. It raised its economic growth forecast and its leaders expect more interest rate increases. However, investors are aware that the Fed took note of the recent decline in

economic data, indicating a disappointing first quarter for 2018.

ff The weakness of the U.S. dollar has given a boost to several other currencies. The yen has become a safe haven at a time of increasing volatility. The Japanese exchange rate reached ?105/US$.

ff The euro is now less volatile than it was at the beginning of the year, and seems to be settling around US$1.23. It was hovering near the US$1.25 mark when the greenback was in trouble. Recent data on business confidence in Europe has raised some doubts about the current economic improvement and the chances of inflation accelerating in the coming quarters. The European Central Bank changed its tune slightly in March, reflecting the improved economic climate, but it will continue purchasing securities at least until the end of September 2018.

ff The pound was worth more than US$1.42 recently. The currency is profiting from an easing of Brexit-related uncertainties and the feeling that the Bank of England (BoE) will raise interest rates again soon. Two BoE leaders already took that position at the monetary policy meeting held in March.

MAIN FACTORS TO WATCH ff More positive economic data in Q2 and inflation acceleration could turn attention back to the progress of U.S. monetary policy and

away from the risks related to surging protectionism. That said, more countries are following in the footsteps of the United States in terms of monetary tightening, which is not helping the U.S. dollar.

ff The Canadian dollar could get slightly stronger in the coming months. We base that forecast on accelerated inflation and an ongoing favourable economic climate, despite a slowdown in the residential sector. Less uncertainty about NAFTA would also help the loonie.

ff The yen's safe haven status should fade away. The euro could remain relatively stable in the short term, but it should appreciate rapidly when the end of the securities purchase program will be confirmed.

Fran?ois Dupuis, Vice-President and Chief Economist ? Mathieu D'Anjou, Senior Economist ? Hendrix Vachon, Senior Economist Desjardins, Economic Studies: 5142812336 or 1 8668667000, ext. 5552336 ? desjardins.economics@ ? economics

NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document's authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright ? 2018, Desjardins Group. All rights reserved.

Main Exchange Rates

ECONOMIC STUDIES

CANADIAN DOLLAR Exchange rate and trend

C$/US$ (inverted scale) 0.90

1.00

1.10

1.20

1.30

1.40

1.50 2012

2013

2014

2015

Sources: Datastream and Desjardins, Economic Studies

Canadian exchange rate 200-day moving average

2016

2017

2018

EURO Exchange rate and trend

US$/ 1.50

1.40

1.30

1.20

1.10

1.00 2012

2013

2014

2015

Sources: Datastream and Desjardins, Economic Studies

Euro zone exchange rate 200-day moving average

2016

2017

2018

BRITISH POUND Exchange rate and trend

US$/? 1.75

1.65

1.55

1.45

1.35

1.25

1.15 2012

2013

2014

2015

Sources: Datastream and Desjardins, Economic Studies

British exchange rate 200-day moving average

2016

2017

2018

SWISS FRANC Exchange rate

Franc/US$ 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70

2012

2013

2014

2015

Franc/US$ (left)

2016

2017

Franc/ (right)

Sources: Datastream and Desjardins, Economic Studies

Franc/ 1.35 1.30 1.25 1.20 1.15 1.10 1.05 1.00 0.95

2018

YEN Exchange rate and trend

?/US$ (inverted scale) 70

80

90

100

110

120

130 2012

2013

2014

2015

Sources: Datastream and Desjardins, Economic Studies

Japanese exchange rate 200-day moving average

2016

2017

2018

AUSTRALIAN DOLLAR Exchange rate and trend

US$/A$ 1.15

1.05

0.95

0.85

0.75

0.65 2012

2013

2014

2015

Sources: Datastream and Desjardins, Economic Studies

Australian exchange rate 200-day moving average

2016

2017

2018

MARCH 2018 | FX FORECASTS 2

ECONOMIC STUDIES

TABLE 1 Currency market: Yields

COUNTRY ? CURRENCY*

SPOT PRICE March 27

Americas Argentina ? peso Brazil ? real Canada ? (USD/CAD) Canada ? (CAD/USD) Mexico ? peso

20.1680 3.3295 1.2878 0.7765

18.3478

VARIATION (%) -1 month -3 months -6 months

0.15 2.43 0.96 -0.96 -2.41

9.18 0.65 1.69 -1.66 -7.48

14.69 4.40 4.12 -3.96 1.33

Asia and South Pacific Australia ? (AUD/USD) China ? yuan renminbi Hong Kong ? dollar India ? rupee Japan ? yen New Zeland ? (NZD/USD) South Korea ? won

0.7679 6.2831 7.8468 64.9450 105.35 0.7269

1,070

-1.41 -0.54 0.25 0.04 -1.85 0.47 -0.09

-1.14 -4.17 0.46 1.29 -7.07 2.94 -0.36

-2.17 -5.41 0.48 -1.17 -6.63 0.94 -6.18

Europe Denmark ? krona Euro zone ? (EUR/USD) Norway ? kroner Russia ? ruble Sweden ? krona Switzerland ? swiss franc United Kingdom ? (GBP/USD)

6.0046 1.2395 7.7180 57.3962 8.2311 0.9482 1.4141

-1.35 1.27 -1.91 2.03 0.06 0.84 1.87

-4.12 4.22 -6.69 -0.70 -0.54 -4.06 5.53

-5.25 5.66 -2.96 -1.30 1.00 -2.72 5.64

* In comparison with the U.S. dollar, unless otherwise indicated. Note: Currency table base on previous day closure.

-1 year

29.03 6.51 -3.76 3.91 -2.80

0.80 -8.58 1.02 -0.08 -4.80 3.16 -3.82

-12.31 13.88 -9.13

0.71 -6.33 -3.57 12.49

LAST 52 WEEKS Higher Average

Lower

20.4040 3.3389 1.3732 0.8239

19.8304

17.4928 3.2162 1.2844 0.7785

18.5295

15.1785 3.0829 1.2138 0.7283

17.5037

0.8112 6.9074 7.8481 65.7150 114.29 0.7522

1,157

0.7733 6.6351 7.8080 64.4638 110.90 0.7141

1,111

0.7345 6.2695 7.7673 63.3400 104.74 0.6810

1,059

7.0195 1.2503 8.6903 60.7687 9.0771 1.0084 1.4303

6.3812 1.1682 8.1311 57.8589 8.3514 0.9713 1.3244

5.9502 1.0599 7.6420 55.7669 7.8402 0.9238 1.2392

TABLE 2 Currency market: History and forecasts

2017

END OF PERIOD

Q3

Q4

Q1f

U.S. dollar Canadian dollar Euro British pound Swiss franc Yen Australian dollar Chinese yuan Mexican peso Brazilian real Effective dollar1

USD/CAD EUR/USD GBP/USD USD/CHF USD/JPY AUD/USD USD/CNY USD/MXN USD/BRL

1.2470 1.1822 1.3417 0.9709 112.49 0.7834 6.6534

18.25 3.1677

88.11

1.2579 1.2008 1.3528 0.9753 112.69 0.7802 6.5067

19.65 3.3077

87.47

1.2903 1.2300 1.4100 0.9500 106.00 0.7700 6.3000

18.40 3.3000

86.20

Canadian dollar U.S. dollar Euro British pound Swiss franc Yen Australian dollar Chinese yuan Mexican peso Brazilian real

CAD/USD EUR/CAD GBP/CAD CAD/CHF CAD/JPY AUD/CAD CAD/CNY CAD/MXN CAD/BRL

0.8020 1.4741 1.6730 0.7786

90.21 0.9768 5.3357

14.64 2.5404

0.7950 1.5105 1.7016 0.7753

89.58 0.9814 5.1726

15.62 2.6295

0.7750 1.5871 1.8194 0.7363

82.15 0.9935 4.8825

14.26 2.5575

f: forecasts; 1 Trade-weighted against major U.S. partners (1973 = 100). Sources: Datastream, Federal Reserve Board and Desjardins, Economic Studies

2018

Q2f

Q3f

1.2658 1.2400 1.4100 0.9400 108.00 0.7800 6.4000

18.60 3.3500

86.00

1.2500 1.2500 1.4100 0.9400 110.00 0.7900 6.4000

18.50 3.3000

85.40

0.7900 1.5696 1.7848 0.7426

85.32 0.9873 5.0560

14.69 2.6465

0.8000 1.5625 1.7625 0.7520

88.00 0.9875 5.1200

14.80 2.6400

Q4f

1.2500 1.2600 1.4000 0.9400 112.00 0.7900 6.3500

18.25 3.2500

85.30

0.8000 1.5750 1.7500 0.7520

89.60 0.9875 5.0800

14.60 2.6000

2019

Q1f

Q2f

Q3f

Q4f

1.2658 1.2700 1.3800 0.9400 114.00 0.7900 6.3500

18.25 3.2500

85.70

1.2500 1.2800 1.3700 0.9400 115.00 0.8000 6.3000

18.00 3.2000

85.20

1.2346 1.2900 1.3800 0.9300 115.00 0.8000 6.3000

18.25 3.2000

84.60

1.2346 1.3000 1.4000 0.9200 114.00 0.8100 6.2500

18.00 3.1000

84.00

0.7900 1.6076 1.7468 0.7426

90.06 1.0000 5.0165

14.42 2.5675

0.8000 1.6000 1.7125 0.7520

92.00 1.0000 5.0400

14.40 2.5600

0.8100 1.5926 1.7037 0.7533

93.15 0.9877 5.1030

14.78 2.5920

0.8100 1.6049 1.7284 0.7452

92.34 1.0000 5.0625

14.58 2.5110

MARCH 2018 | FX FORECASTS 3

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