Loonie could fall to 69 cents US by end of 2017, Macquarie strategist predicts

A strategist is predicting the Canadian dollar could go down to 69 cents US by the end of 2017, despite a pick-up in energy prices.

Macquarie Capital strategist David Doyle told BNN he’s expecting the loonie to slide as much as 10 per cent from its current levels, driven by an ongoing monetary policy divergence between the U.S. Federal Reserve and the Bank of Canada.

“That, we think, drives the two-year sovereign bond differential further [which has] had a tight relationship with the Canadian dollar for the last four years,” he said in an interview.

But Doyle believes a lower loonie could help the economy overall.

“That's something that we think could help stimulate the Canadian economy,” he said. “It could actually be positive for the Canadian equity markets because of that foreign revenue translation effect.”

The Canadian dollar was trading on Monday near 75 cents US in its fourth straight day of losses, a slump which was triggered after Bank of Canada Governor Stephen Poloz revealed his central bank considered cutting rates last week. Doyle said he thinks the bank’s economic forecasts are too optimistic and believes the government's recent move to tighten mortgage and tax rules are making a spring 2017 rate cut more likely.

“The measures that were introduced by [Finance] Minister [Bill] Morneau a couple of weeks ago have given [the Bank of Canada] more confidence that that's being handled by the government and that they can then pursue a more appropriate monetary policy for the rest of the economy,” he said. “And that's increased their comfort level with considering the possibility of cutting rates.”

Doyle added that although there has been a recovery in energy prices, it still isn’t enough to ignite economic growth.

"Energy capex out in Alberta isn't about to get turned on in large fashion and stimulate the broader economy,” he said. “So I think we can be comfortable that energy investment is no longer a substantial headwind to Canada's growth, but it’s also not yet at the stage where it's going to be an extraordinary growth driver.”