Loonie could drop to nearly US$0.70 in near future: CIBC analysts

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Yahoo Finance Canada
A Canadian dollar coin, is pictured in this photo illustration taken in Toronto January 23, 2015. (REUTERS/Mark Blinch/File Photo)
A Canadian dollar coin, is pictured in this photo illustration taken in Toronto January 23, 2015. (REUTERS/Mark Blinch/File Photo)

The Canadian dollar hovered around US$0.77 on Monday, continuing the steady trend downwards over the last six months.

According to CIBC economic analysts, it’s destined to head even lower.

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The latest report out of CIBC Capital Markets suggests that we could see a loonie around US$0.71 in the 2020s.

“Perhaps we’re seeing the first signs of the loonie’s shift, if you look hard enough,” write CIBC economists Avery Shenfeld and Royce Mendes.

The report points to a weakening manufacturing industry and the lack of new industrial growth as part of the problem.

“What’s been lacking are ribbon-cutting ceremonies at the new facilities — factories, labs and office towers — needed to expand export capacity,” write Shenfeld and Mendes.

“When exports were in high gear in the late-1990s, they were accompanied by healthy gains in industrial capacity, growth that has gone missing since then, other than in energy production and a few isolated sectors. The question is, can Canada compete as a location for such facilities?”

The report goes on to highlight that other countries offer more cost-effective manufacturing wages for U.S. companies looking to have goods assembled out of country. Mexico, Taiwan and South Korea were all highlighted as alternatives that offer greater savings on wages.

Canada’s central bank is also less likely to be aggressive with rate hikes than the U.S., the report explains, as household debt in Canada remain elevated.

Altogether, it paints a pretty grim picture in the near future for the Canadian dollar, one that remains heavily dependent on the outcome of NAFTA talks, which continue to limp along.

“If we don’t make progress in tilting the playing field back to Canada, there is always the market’s invisible hand to do the work for us.”

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