The Canadian dollar, the sixth worst performer against the U.S. dollar this year among major currencies, is poised to rebound on North American growth amid dwindling safe assets globally, according to panelists at the Bloomberg Canadian Fixed Income Conference.
“In this uncertain world where you are looking for safer assets, there are still significant assets to be put to work in the Canadian dollar,” said Stefane Marion, chief economist and strategist with National Bank of Canada (NA) in Montreal. Over the longer term, “the fundamentals should support the Canadian dollar.”
The currency has fallen 3.9 percent this year against its U.S. counterpart, a drop that has accelerated since May 22 when U.S. Federal Reserve Chairman Ben S. Bernanke said the central bank could begin tapering monthly asset purchases if the economy showed continued growth. The quantitative-easing program is thought by some to weaken the greenback.
The Federal Open Market Committee, which meets Sept. 17-18, may decide to reduce monthly purchases of Treasuries to $35 billion from $45 billion, according to the median of 34 responses in a Bloomberg survey of economists.
The Fed pulling back accommodation means “the Canadian dollar is overvalued and the U.S. is poised to outperform,” over the short term, said Joshua DeMasi, a global currency strategist in Boston at Loomis Sayles & Co., which manages $188 billion.
Still, he said, in the longer term, “the U.S. will be the tide that lifts the Canadian boat in investors’ minds.”
The Canadian dollar, known as the loonie for the image of the aquatic bird on the C$1 coin, fell less than 0.1 percent to C$1.0323 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0306, strongest since Aug. 16. One loonie buys 96.87 U.S. cents.
The Bank of Canada forecasts third-quarter growth at 3.8 percent at an annual rate in its July monetary policy report. Gross domestic product grew 1.7 percent in the second quarter. Annual growth will rise to 2.3 percent in 2014 and 2.7 percent the next year, according to economists in Bloomberg surveys.
The U.S. economy is forecast to gain 2.65 percent and 3 percent the next two years, compared with advances of 1 percent and 1.4 percent for the euro zone and 1.55 percent and 1.3 percent for Japan, according to separate surveys.
The Canadian dollar will be bolstered as investors consider it a safe asset amid global turmoil, said Steven Hess, Moody’s Investors Service senior vice-president and lead sovereign analyst for the U.S. and Canada.
“Central banks are viewing the Canadian dollar as a store of value,” Hess said. Canada maintains a top AAA credit rating with Moody’s, Standard & Poor’s and Fitch Ratings.
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