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Canadian Dollar Forecast, January 2022

CANADIAN BANK CURRENCY FORECAST

US Canadian Forecast 2022

The loonie was on a rollercoaster to close the year with significant directional shifts felt from Omicron and the Fed’s hawkish stance, but it has since come full circle and ended 2021 significantly stronger than most had anticipated. On the domestic front, Canada's labor market outperforms the rest of the world, indicating that slack is swiftly disappearing, while inflation is substantially above target.

While an omicron-stalled recovery prevents a Bank of Canada action in January, assuming a spring reprieve from Covid, expect for April to kick off an already well-forecast tightening cycle. Omicron is expected to witness a drop in services employment and a weak first-quarter GDP figure, although demand will likely rebound once this wave passes. Put together, the loonie should gather steam in 2022.

USD/CAD Forecast

Bank Trend January Q1 2022 (forecast) Q2 2022 (forecast) Q3 2022 (forecast) Q4 2022 (forecast)
CIBC 1.26 1.29 1.30 1.32 1.31
TD 1.26 1.25 1.26 1.27 1.27
BNS 1.26 1.22 1.21 1.20 1.20
RBC 1.26 1.26 1.27 1.27 1.27
BMO 1.26 1.27 1.26 1.25 1.24
Average 1.26 1.26 1.26 1.26

Euro Canadian Forecast 2022

The European Central Bank announced at its most recent meeting that it will continue to buy bonds until 2022, though at a slower pace. While the emergency PEPP program will be allowed to expire at the end of Q1, the central bank will increase monthly purchases under the Asset Purchase Program from €20 billion to €40 billion in Q2, then ease back to €30 billion in Q3, before returning to €20 billion in Q4.

A long period of ECB loose monetary policy, paired against firming expectations for Fed hawkishness, will underpin any EUR strength which is likely to remain weak and on the defensive in 2022, unless fiscal policy proves much more expansive than expected.

EUR/CAD Forecast

Bank Trend January Q1 2022 (forecast) Q2 2022 (forecast) Q3 2022 (forecast) Q4 2022 (forecast)
CIBC 1.44 1.43 1.43 1.45 1.44
TD 1.44 1.45 1.45 1.47 1.50
BNS 1.44 1.37 1.33 1.31 1.30
RBC 1.44 1.41 1.42 1.43 1.43
BMO 1.44 1.42 1.41 1.39 1.38
Average 1.42 1.41 1.41 1.41

GBP Canadian Forecast 2022

After confusing the market by not rising in November, the BoE opted to raise rates by 15 basis points in December, reversing the March 2020 emergency cut.  While the Bank has made it apparent that it intends to stick to its CPI mission, few predict a significant tightening of policy in 2022. Moderating growth and a peak in energy costs could keep inflation in check this year, preventing the Bank of England from being compelled to tighten aggressively. A weakening GDP backdrop, persistent UK/EU trade frictions, and a less aggressive UK rate cycle than presently expected all point to Sterling headwinds persisting.

GBP/CAD Forecast

Bank Trend January Q1 2022 (forecast) Q2 2022 (forecast) Q3 2022 (forecast) Q4 2022 (forecast)
CIBC 1.71 1.69 1.68 1.72 1.73
TD 1.71 1.70 1.73 1.75 1.78
BNS 1.71 1.65 1.66 1.68 1.70
RBC 1.71 1.66 1.67 1.68 1.69
BMO 1.71 1.68 1.66 1.65 1.62
Average 1.68 1.68 1.70 1.70

Currency Chart

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