Richter survey of bank forecasts: Foreign exchange and interest rates

October 2015

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Loonie’s lower value expected to persist

The banks’ near term forecasts remain largely unchanged from the last publication period; consensus remains that the currency pair will trade between 0.72 and 0.78 USD/CAD through the end of 2016. However, the 2016 forecasts have been lowered considerably, down from between 0.79 and 0.85, to between 0.72 and 0.78.

CAD/EUR uncertainty continues

The EUR has strengthened steadily against the CAD over the past several months. The consensus of the surveyed banks reveals that the EUR will not appreciate much further from current levels – only RBC and CIBC anticipate slight appreciation from current levels. Despite this, however, the range of forecasted values remains wide, ranging between 1.54 and 1.27 CAD/EUR through 2016.

Federal funds rate expected to rise; overnight rate forecasted steady through next four quarters

The banks surveyed show a consensus that the overnight rate will remain at 0.50% until at least Q3 of 2016. Thereafter, RBC is the sole surveyed bank to anticipate the Bank of Canada to increase the overnight rate by 2016 year-end. In the US, the Canadian banks maintain their consensus that the federal funds rate should steadily rise through 2016 from current levels.

2 year Canadian and US government bond yields to gradually rise

The consensus remains that 2 year yields will trend upward through 2016 in both Canada and in the US. Scotiabank anticipates the steepest increases.

Forecasted range of 10 year Canadian and US government bond yields tightens

RBC, an outlier in the September publication, revised down its 2016 year end estimated 10 year Canadian and US government bond yields from 2.9% and 3.5%, effectively tightening the forecasted range for the current period amongst the surveyed banks.

Rising long bond yields expected

The surveyed banks anticipate long bond yields to rise over the current and upcoming year, with Laurentian and RBC continuing to anticipate the steepest increases in Canada and the U.S. respectively.

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