Richter survey of bank forecasts: Foreign exchange and interest rates

Transcription

1 Richter survey of bank forecasts: Foreign exchange and interest rates Richter LLP 2345 Yonge St., Suite 300 Toronto, ON M4P 2E5 181 Bay St., Suite 3320 Bay Wellington Tower Toronto, ON M5J 2T McGill College Montréal, QC H3A 0G6 Montréal, Toronto

2 Have we bottomed out yet? Loonie regains after reaching fresh lows The commodity rout persisted in the month of January and led into February with the price for WTI crude oil dropping to below 27 USD/barrel. This heightened the risks to energy dependent economies and investors, and drove the loonie to fresh lows as it traded below 69.0 US /CAD for the first time in 13 years. The loonie did regain some ground against the USD as commodity prices stabilized, and the bank forecasts are optimistic about further strengthening of the CAD. This month s forecasts reveal a consensus that the loonie is expected to appreciate steadily, relative to the USD through to The consensus is that the currency pair should trade between 74.9 and 80.0 US /CAD by the end of Notably, is calling for exports and tourism, the beneficiaries of the current economic climate, to support a modest pickup in the rate of Canadian economic growth and thus, temper the appreciation of the CAD. David Hogan, CPA, CMA, MA (Economics) Partner and Chief Economist Richter LLP dhogan@richter.ca T Currency forecasts by bank (US per CAD) Bank

3 CAD/EUR forecasts largely unchanged; uncertainty persists The reporting banks anticipate the CAD will trade in a wide range, between 62.1 and 80.0 EUR /CAD, through The high end of this range is owned by, whereas is less optimistic on the strength of the CAD relative to the EUR. This wide range can be attributed to notable differences in outlooks on both the price of commodities and monetary policy actions. For instance, anticipates the European Central Bank to add stimulus to the Eurozone at the March meeting, thereby weighing on the EUR in the near term. In the meantime, lowered its forecast on the price of WTI crude oil, therefore causing the bank to revise downward its outlook on the relative strength of the CAD. Currency forecasts by bank (CAD per EUR) 1 Bank Where a CAD/EUR forecast was not published, cross-rates were derived using CAD/USD and USD/EUR currency pairs. 3

4 sees Bank of Canada cut, Fed to continue gradual lift The current series of forecasts shows anticipating a further cut to the Bank of Canada overnight rate. believes that real GDP growth will lag the forecasts put forward by the Bank of Canada of 1.4% and 2.6% through 2016 and on the other hand, anticipates a strong rebound to the Canadian economy, thereby paving the way for a series of overnight rate hikes through 2017 to %. This is well above any other forecast presented by the remaining surveyed banks. Regarding the United States, there is a consensus that the Fed will continue its gradual liftoff, with once again on the high-end of forecasts. Canada Overnight lending rate United States federal funds rate Overnight rate (current: %) Federal funds rate (current: 0.38%)

5 2-year to increase, forecasts revised downward The yield on the 2-year Canadian bond slid to 0.35% as worries about economic growth grew. The banks maintained their consensus that the yield on the Canadian 2-year bond will increase, but largely revised down their expectations. For instance, forecasts the yield at 0.66% by the end of 2016, versus 0.98% in last month s forecast. The general consensus regarding the United States is that the 2-year bond yield will rise steadily through 2016 and Canada 2 year United States 2 year Canada - 2 year (current: 0.35%) U.S. - 2 year (current: 0.69%)

6 Canadian and U.S. 10-year to rise The yield on 10-year is expected to increase from current levels through 2017 in both Canada and the U.S. A review of s publication reveals that since Canadian growth and headline inflation outlooks were revised downwards, then the same holds for interest rate projections. As such, the 10-year Canadian bond yield forecast was revised downward from 2.03% to 1.73% by 2016 year end. Canada 10 year United States 10 year Canada - 10 year (current: 1.01%) U.S year (current: 1.74%)

7 Long to rise through 2017 The reporting banks are in consensus that long will steadily rise by 2016 and 2017 year end. Relative to last month s forecast, the range of forecasts has narrowed with respect to 30-year U.S. Treasury yields. Last month, was forecasting the 30-year Treasury yield to be as high as 4.25% by 2017 year end, but has notably revised this forecast downward to 3.85%. In the meantime,, who forecasted a 3.11% 30-year Treasury yield last month, revised upward their forecast to 3.16% for the same time frame. Canada 30 year United States 30 year Canada - 30 year (current: %) Currency quotes and interest rate actuals are presented as of February 12, The respective forecasting dates are as follows: : 2016/02/01 Bank: 2016/02/01 & 2016/01/22 : 2016/02/11 : 2016/02/05 : 2016/01/28 : 2016/01/25 : 2016/01/28 : 2016/02/01 Interest rate charts: Policy rates are as of month-end, and actual bond yields are average monthly values, as published by the Bank of Canada and the Federal Reserve. U.S year (current: 2.55%) All forecasts are retrieved from publicly available data sources

8 About us Founded in Montreal in 1926, Richter is a licensed public accounting firm that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring, insolvency, business valuation, corporate finance, litigation support, internal controls and risk management, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. RICHTER Assurance Tax Consulting Wealth Management Audit and review Internal audit and risk management IT audit and security Management advisory services Transition to IFRS and private enterprise GAAP Enterprise accounting Canadian, U.S. and international taxation Scientific research and experimental development Transfer pricing Commodity taxes Trans-border services Estates and trusts Personal tax planning Government assistance Financial reorganization Purchase and sales advisory services in Canada and the U.S. Viability analysis and corporate restructuring Forensic accounting and litigation support Financing Financial management consulting Business valuation Transaction support Comprehensive financial advisory services for high net worth families Independent third-party wealth management services Estate, tax, will, and philanthropic planning EVOLUTION OF EXCELLENCE