View the George Davis Report | A Canadian Dollar Video Series – July 2022 Edition | Allison Martinello Group | RBC Wealth Management

July 19, 2022 | Dane Charles


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We are pleased to bring you the latest edition of the series produced by our colleagues in RBC Capital Markets, hosted by George Davis, CMT, the award winning Chief Technical Analyst for Fixed Income and Currency Strategy.  In this installment George looks at recent revisions to RBC’s economic forecast which point to a lower growth profile and their implications going forward for the Canadian dollar. 

 

View the George Davis Report here.

 

Over the past year and a half, supply chain disruptions and labour shortages have contributed to inflation.  Combined with the escalation of the Russia/Ukraine conflict, pricing pressures are no longer seen as transitory by global central banks.  In Canada, CPI for May was at a multi-decade high, while the Q2 Business Outlook Survey showed near-term inflation expectations at record levels leading to a much more aggressive response from the Bank of Canada.  RBC Economics expects the BoC to remain aggressive through the fall of this year to a terminal rate of 3.25%.  This means that in order to meet their inflation objectives, the BoC is willing to sacrifice growth as rates are raised in a slower-growth environment.  This will lead to below-trend growth in 2023 as it tapers off dramatically to just 0.8% next year, with negative growth in Q2/Q3 leading to a mild recession. 

 

Rising interest rates increase carrying costs for already indebted consumers and will continue to weigh on a housing market that has already slowed down, contributing to a slower growth profile both in Canada and globally.  This will tilt Capital Market’s forecast toward CAD weakness pushing USDCAD toward 1.3100 this year and 1.3400 at the end of 2023.  Pullbacks toward 1.2800 should be of interest to USD buyers, while USD sellers should look at 1.31/1.32 as the top end of the trading range.