The US dollar on sale! | La Presse

Are you planning upcoming purchases or outlays in US dollars? Or an upcoming trip to the United States during which you will need US dollars? Be aware that the greenback is currently on sale on the international currency market.

This recent decline is a consequence of recent weaker-than-expected economic indicators in the United States and an acceleration in expectations of interest rate cuts by the US Federal Reserve (Fed).

In figures, this temporary balance of the American dollar means, for example, that its exchange cost (before transaction fees) for Canadians has slipped to around CAD$1.34 for CAD$1. Just a month ago, it was still trading at around CAD$1.38.

Seen another way, this means that the cross-border purchasing power of the Canadian dollar is currently trading at around 74 cents US, compared to 72 cents US at the end of July (excluding transaction fees).

The situation is similar from the Europeans’ point of view. Their cost of buying US dollars is currently around 0.89 euros per US dollar, always before currency transaction costs. Just two months ago, Europeans had to pay at least 0.94 euros in exchange for one US dollar.

It shouldn’t last, experts say

However, according to currency market analysts, this unusual situation of a US dollar in “balance” against the main currencies of developed economies should resolve itself over the coming months, as concerns about the economic situation in the United States ease and the Fed begins to cut interest rates.

“The American economic news has been a greater source of volatility in exchange rates recently,” notes Jimmy Jean, vice-president, chief economist and strategist at Mouvement Desjardins.

“Then the markets [financiers] reacted strongly to the employment figures [en juillet aux États-Unis] disappointing ones that were published on Friday, August 2,” explains Jimmy Jean in the recent update of currency forecasts at Desjardins.

“The net effect on the US dollar has been a depreciation, but it is important to be more nuanced. The US dollar is being penalized [sur le marché des devises] by expectations of more aggressive rate cuts in the United States, but this scenario seems exaggerated to us,” says the chief economist at Desjardins.

“We now anticipate three declines [de taux d’intérêt] of 25 basis points [0,25 %] in the United States by the end of the year, which is less than what the market is expecting. So we see some room for a re-appreciation of the US dollar, especially against the euro.”

Why is the US dollar depreciating?

A similar observation was made by Stéfane Marion, economist and chief strategist at the National Bank.

“The US dollar is under pressure as the US labor market continues to deteriorate. The unemployment rate hit 4.3% in July, the fourth consecutive month that the figure was higher than expected,” Marion noted in his recent currency market analysis update.

Also, by refocusing its attention on its second priority after inflation, namely promoting full employment in the American economy, the Fed “should feel comfortable easing further [les taux d’intérêt] than she had previously considered.”

Therefore, anticipates the economist of the National Bank, “we believe that the weakness of the American dollar will be temporary, because a slowdown of the largest economy in the world will be reflected in the financial markets by a reduction of risks [parmi les investisseurs] which generally favors a strengthening of the greenback.”

In return, this movement of “risk reduction” in the financial markets could go against the value of the Canadian dollar compared to its American neighbor.

“The scenario of a soft landing for the Canadian economy is not a given. If the next data prove to be in line with our forecasts, [la Banque du Canada] will have good reasons to proceed with a new rate cut in September, warns Stéfane Marion.

“At this point, we continue to believe that [le taux de change] between the US and Canadian dollars will exceed 1.40 CAD/US$ [sous les 0,71 $ US/$ CAN] in the coming months, as slowing global economic growth weighs on commodity prices” and the currencies of producing countries such as Canada.

At the Desjardins Group, we also expect that “the Canadian dollar will depreciate slightly over the coming months” against the American dollar.

“The Canadian economy appears more fragile and it would be surprising to see the Bank of Canada lower its key rate less quickly than the Fed by the end of 2024,” says Jimmy Jean. Also, “commodity prices are likely to remain volatile depending on the perception [des investisseurs] of the state of the global economy.”