The Canadian dollar appears poised for further gains amid continued global economic recovery and higher oil prices, according to a new report from Montreal-based BCA Research.
“The bullish case for the Canadian dollar remains solid,” the firm says, citing improving global economic conditions, and the uptrend in crude oil prices. Additionally, it notes that relatively favourable monetary and fiscal conditions in Canada will ensure that it “continues to be a magnet for foreign capital inflows.”
In particular, BCA says that the Canadian dollar presents a buying opportunity, relative to the Australian dollar. “While our foreign exchange team is bullish on the ‘commodity currencies’ as a whole, the Canadian dollar is set to outperform its Australian counterpart,” it says, adding, “The Australian dollar is modestly overvalued against the Canadian dollar on a PPP basis, and the loonie is cheaper than the Aussie on a terms of trade basis.”
Interest rate expectations are also moving in favour of the Canadian dollar, as Australia’s central bank has left the door open for further monetary easing, while the Bank of Canada will start lifting its policy rate in the coming months, BCA says.
Unlike the Aussie dollar, BCA notes that the Canadian dollar has yet to move above the high reached during the last cycle, “implying there is plenty of room for the Canadian dollar to catch up.”
While the positive Canadian dollar story is well known, BCA says that it expects it to demonstrate “further strength on a cyclical basis against both the U.S. dollar and relative to other commodity currencies.”