Canadian dollar rally won’t be sustained

The recent rally in the Canadian dollar, which has been driven by rising oil prices and downgrades to the outlook for US interest rates, is unlikely to last beyond the middle of this year. Admittedly, we are forecasting a further small rise in oil prices by year-end, to around $45 per barrel. But the gap between US and Canadian interest rates is likely to widen soon, which will put downward pressure on the Canadian currency. We expect it to end the year at around US$0.73.