CNS Canada — Farm Credit Canada (FCC) predicts the Canadian dollar will spend the year around the 75-U.S. cent mark — slightly softer than last year’s average of 76.
“We’re going to see volatility throughout the year obviously but when we look at that season, or the full year average, we’re looking for it to be right around that 75 cents,” said Craig Klemmer, principal agricultural economist at FCC.
FCC bases its prediction on oil price forecasts and interest rate spreads between the U.S. and Canada. Of late, oil has been on the upswing, due to production cuts from the Organization of Petroleum Exporting Countries (OPEC).
“On the downside of the oil side of the complex, the Canadian economy, economic growth, U.S. growth for the economy looks to be slowing down a little bit and that’s going to put some downward pressure as we move throughout the year,” Klemmer said.
The Bank of Canada has lowered its expectation for rate increases, and FCC forecasts for one to two rate increases this year. For the U.S., FCC also expects more rate increases, either two or three.
Global trade could also affect the dollar. When looking south of the border, Klemmer said, FCC pays close attention to the trade talks between the U.S. and China and what affect that could have on global trade.
“We’re going to continue to be monitoring how those relationships are through 2019. And we do see a thawing in that relationship and that’s going to help the markets out moving forward in 2019,” he said.
The Canadian dollar could also see some pressure from the rate of the growth of the U.S. and Canadian economies. FCC is expecting the U.S. economy to grow slightly faster than the Canadian economy, at two to 2.5 per cent.
In Canada, the Bank of Canada expects for inflation to hit its two per cent mid-point target.
When looking at agriculture specifically, the slightly weaker Canadian dollar should be good for the industry. Canada’s agriculture industry is export-driven, with most business done in U.S. dollars.
“That’s going to give us a little of a competitive advantage on the returns for our pork and beef exports, as well as our grain and oilseed and pulse exports, and those will help to improve, or help support Canadian agriculture,” Klemmer said.
— Ashley Robinson writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.