Richter survey of bank forecasts: Foreign exchange and interest rates

August 2015

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Revised outlooks paint grimmer CAD picture as 80 cent loonie falls from bank forecasts

With the exception of modest resilience shown in the month of June, the loonie’s depreciation has been relatively swift and uninterrupted over the past several months. For yet another month, the CAD continued its slide as it traded at 0.80 USD/CAD at the start of July, and depreciated to 0.76 USD/CAD by month end.  

The banks revised downward their forecasts on the value of the CAD relative to the USD as a result of this continued depreciation. A consensus now exists amongst the surveyed banks that the loonie will trade under 0.80 USD/CAD through the end of 2016.

CAD/EUR forecasts remain divided

The loonie traded at 1.39 CAD/EUR to open the month of July and depreciated thereafter, with a single EUR demanding nearly 1.44 CAD by month’s end. The collective forecasts provided by the banks provide no clear guidance on the future value of the currency pair, as exemplified by the wide range of forecasted values. Amongst the surveyed banks, CIBC is on one end calling for 1.54 CAD/EUR by the end of 2016, whilst BMO stands on the other end predicting 1.26 CAD/EUR for the same period.

Overnight rate cut once again, federal funds rate expected to rise

Effective July 16, the Bank of Canada cut the overnight rate by 25 bps for the second time in six months in an effort to provide monetary stimulus to a sluggish Canadian economy. The surveyed banks do not forecast any further cuts, with the overnight rate expected to remain steady or increase through 2016. In the U.S., a consensus remains that the federal funds rate will rise through 2015 and 2016.

Gradual rate rises in 2 year bonds, Canadian forecasts revised downwards

The 2 year Canadian government bond yields were revised downwards by all surveyed banks since last reporting. A consensus does remain that the 2 year government bond yields will rise both in Canada and the U.S. through 2016. Scotiabank is on the high end of these forecasts, by calling for 2 year government bonds to yield 1.80% in Canada and 2.60% in the U.S. by the end of 2016.

Canadian and U.S. 10 year government bond yields to rise through 2016

There is a consensus amongst the reporting banks that 10 year government bond yields will rise through 2016. Noticeably, RBC forecasts the steepest increases on both the Canadian and U.S. side.

Long bond yields to rise in both Canada and the U.S.

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

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