October 2, 2012

The future of commodities presents varied Canadian dollar forecasts at CanaData conference

TORONTO

Bringing some of the nation’s top economists together at the annual CanaData Construction Industry Forecasts Conference can sometimes bring a differing opinion when forecasting the future.

At this year’s 27th annual conference, Export Development Canada (EDC) vice-president and chief economist Peter Hall believes that the Canadian dollar will come down compared to the U.S. dollar.

CanaData chief economist Alex Carrick believes the Canadian dollar will rise in the next years.

Though the world economy is growing, EDC expects commodity prices to come down, which would bring down the Canadian dollar.

Hall predicts the Canadian dollar will be at about 91 cents to the U.S. dollar by 2016 or 2017.

When the financial collapse happened, corporations hoarded cash instantly, said Hall, and they put it into the stock market, and one section in which to invest is commodities.

But now corporations are pulling their cash out of the stock market.

“The first few dollars that leave create enough uncertainty about everybody else that’s speculating all of these things, the bubble bursts,” explains Hall.

“We believe there’s going to be a repatriation of a massive amount of funds that isn’t going to hurt stock markets,” as much as it will hurt other areas.

“That’s why we’ll see commodity prices come down.”

Hall said interest rates will move upward, “but pretty much in lock step with the United States. That’s not going drive our currency upwards.”

Carrick, on the other hand, believes that the Canadian currency will rise to $1.07 to the U.S. dollar in the next few years.

“The Canadian dollar is increasingly tied to the price of commodities. It’s hard to imagine how the price of commodities isn’t going to keep increasing, particularly with emerging world economies,” he said.

“The U.S. is maybe not deliberately, but consciously pursuing a policy to devalue the value of the greenback, through the very low interest rates and through things like QE3 [Quantitative Easing] that is essentially just printing money.”

Inflation rates in Canada and the United States are very low right now, says Carrick.

“You don’t have to worry about inflation right now and what this does it removes the justification for the Bank of Canada to raise interest rates,” Carrick explained.

“The federal reserve in the States has already said it’s keeping its interest rate at essential zero per cent in 2015.”

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