The economists at CIBC get bold with a call
It's rare for an economist to make such a strong statement on a currency but CIBC economist Bejamin Tal thinks the Canadian dollar is headed much lower and has four reasons for the call:
1) The odds of a December Bank of Canada hike are too high
"You have to be extremely creative to generate a scenario in which the Bank of Canada moves in December," the economist said in a report titled 'short the loonie'. "As that probability fades to zero in the coming weeks, the Canadian dollar will feel the pain."
2) NAFTA renegotiations are going badly
Tal fears Trump could use his Presidential powers to punish Canada. He noted the White House can act unilaterally on tariffs, as well as balance of payment and national security issues.
3) Powell or Taylor will mean higher rates
Tal says the market will soon price in more US hikes regardless of whether the new Fed chief is Powell or Taylor.
4) US tax changes
The White House today said it wants corporate tax reform passed by Thanksgiving. Tal believes a tax cut will be a further catalyst for the US dollar.
As for what's next for USD/CAD, he said "...The full cent drop in the currency following the Bank of Canada's communication was highly predictable. It was an easy trade. And that trade is still very attractive."
Tal expects USD/CAD to rise to 1.33 in the first quarter of 2017.
