Loonie is pushing higher amid parabolic global growth expectations: Market strategist
A strengthening Canadian dollar won’t prevent the country’s economy from continuing its growth trajectory, a currency strategist said.
Karl Schamotta, chief market strategist at Cambridge Global Payments, said in an interview with BNN Bloomberg Friday that while the impact of a rising Canadian dollar on Canada’s exports has historically been an economic headwind, it is real estate that will continue to be the main driver of growth
“The reality is that the export sectors in Canada, whether we’re talking manufacturing or commodities, really play second fiddle at this point to the housing sector,” Schamotta said. “This strength in the loonie is something that consumers want and it’s unlikely to shake that underlying propensity to spend that we see driving economic growth right now.”
The Canadian dollar traded above 81 cents on Friday amid widespread strength in commodity prices and as the Bank of Canada sounded more hawkish than the Fed on its timeline for future rate increases.
Schamotta said the loonie has still further room to run from current levels, and that currency markets could “overshoot” its value to 83.3 cents U.S. in the near term.
Nevertheless, he warned the country’s overreliance on housing could become a big problem soon.
“Clearly we’re sort of a one-horse economy at this point and that’s very concerning because if you look at global markets right now, we’re seeing a slowdown in real estate markets whether you’re in the U.K., the U.S or elsewhere,” he said. “That means that we may begin to see a weakening in momentum and activity in that market, particularly as we come out of lockdown.”
Canada’s gross domestic product grew 0.4 per cent in February with the retail sector leading the way up. The gains were partly offset by some weakness in energy and manufacturing.
Construction and real estate were also big contributors to growth, as the country’s hot housing sector, which has continued to soar amid the pandemic, showed no signs of stopping.
Schamotta said he expects the speculative fervour driving housing to weaken as the country exits COVID-19 restrictions around mid-summer.
“If we do see that weaken, then we're going to see wealth effects fade a bit and consumers pull back a little bit on the spending,” he said. “Potentially, what we'd begin to see is a bit of a fade in that overall growth rate that we're seeing right now.”