Prospects for goof The year 2023 largely depends on commodity prices, how the US dollar appreciates and whether central banks succeed in avoiding a major recession, experts say.
The Canadian dollar recently rose to a more than two-month high against the US dollar, which strengthened on Friday following a better-than-expected jobs report.
However, analysts expect the US dollar to continue to weaken into 2023. CIBC, in a January 23 report, said the currency is likely to weaken in 2023, which could could lead to a stronger Canadian dollar in the following quarters.
Analysts at several major Canadian banks predict the US dollar will be worth close to 77 US cents by the end of 2023, while it is currently close to 75 US cents.
Why did the Central Bank of Canada raise interest rates? Brief statement explaining the decision
Why did the Central Bank of Canada raise interest rates? Brief statement explaining the decision
The outlook for the Canadian dollar for the year depends heavily on external developments, with commodity prices and potentially positive valuations for the dollar, Scotiabank said in a report. in early January.
The bank said that while year-end weakness in the U.S. dollar should be the driving force behind the Canadian dollar, the Canadian dollar is expected to underperform against many of its peers over the course of the year. G10 group this year.
Michael Greenberg, senior vice president and portfolio manager at Franklin Templeton Investment Solutions, said that if the recession caused by central bank policy is harsher than expected or hoped for, that will weaken the dollar.
Meanwhile, a soft landing means strength for the Canadian dollar, he said.
Greenberg said the Canadian dollar has performed relatively well against most other international currencies for most of last year.
“We hold much better against the euro and the yen, but… we don’t hold that well against the US dollar,” he said.
There was little change in the last quarter, he said, as it became clear that inflation had peaked after months of aggressive interest rate hikes by the US Federal Reserve and the Bank of Canada, which were ahead of the other countries in tightening policy. . Greenberg said other markets such as Japan and Europe have changed their own policies to combat inflation and their currencies have appreciated.
Meanwhile, the strong commodity prices that supported the dollar in early 2023 are starting to weaken, he said.
Greenberg thinks the Canadian dollar will be relatively volatile in 2023, with a little more economic certainty removing some of the risk.
“We should expect maybe a little bit less volatility,” he said, adding that although investors may still have some opportunity to profit from the dollar’s highs and lows, , but consumers when making shopping or travel decisions in the US shouldn’t worry too much about the currency making big moves throughout the year.
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