CAD

Over the next month or two, we think economic surprise indices will soften in the United States, with consumer spending and labour market measures weakening relative to still-optimistic market forecasts. Global financial conditions should ease as US yields stabilize, and expected growth differentials should narrow, adding momentum to an already-underway portfolio rebalancing process in major investment portfolios. Against this backdrop, high-beta (growth-sensitive) currencies should broadly gain against the dollar, with the Canadian dollar near the head of the pack. Bloomberg Consensus 2024 Growth Forecast, %

We think the loonie will struggle to sustain any gains achieved in the coming months and could push above the 1.40 mark in the early new year as the lagging effects of last year’s increase in borrowing costs hit home. Although we expect a modest recovery toward the end of 2024 – mostly driven by a broader easing in global financial conditions – we remain bearish on the loonie over longer time horizons. Canada faces serious and long-term economic challenges, with overvaluation in real estate markets, spectacularly-high private sector debt levels, poor productivity, and an outsized government sector likely to...