The Canadian dollar could fall as low as 77 cents U.S. if the Bank of Canada cuts rates again in March, says a leading U.S. bank.
JPMorgan sees a 75% chance the Bank will cut is benchmark rate at its next meeting, higher than the market’s bet of a 50% chance.
Canada has so far only witnessed the tip of the iceberg in terms of direct direct damage from the oil price collapse (especially regarding energy-sector capex and employment), said JPMorgan analysts Kevin Hebner and Niall O’Connor in the report. Canada’s Parliamentary Budget Officer has estimated that WTI trading at $48 through 2015 would reduce the federal budget balance by $5.3-billion. And the Bank of Canada also is concerned about other “financial stability risks” such as stretched household debt levels and the frothy housing market.
“All together, particularly from a risk management perspective, this strongly suggests that last week’s move was not a “one and done” affair and that a second cut is highly likely,” the analysts said.
The only thing that might stop a rate cut would be a V-shaped recovery in oil prices soon, anevent the analysts view as highly unlikely. JPMorgan expects oil to average $41 this year.
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