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Loonie ‘Will Remain In Crash Position': BMO

02/11/2015 11:47 EST | Updated 02/11/2015 11:59 EST
Richard Goerg via Getty Images

The Canadian dollar “will remain in crash position” because of the possibility that the U.S. and Canadian economies will diverge further, the Bank of Montreal said Wednesday.

The prediction comes after a series of increasingly gloomy forecasts for the Canadian dollar, with some analysts seeing the loonie drop below 70 cents, levels the currency hasn't seen since 2004.

BMO economist Sal Guatieri sees the possibility of the U.S. hiking interest rates this summer at the same time as the Bank of Canada again lowers its own, and if that were to happen, the loonie would fall “far lower than we anticipate,” he told the Globe and Mail.

Guatieri notes that this isn’t BMO’s official forecast. The bank sees Canadian interest rates standing pat this summer, after a rate cut in the spring, and it doesn’t expect the U.S.’s Federal Reserve to raise rates until September.

But he sees a “non-zero” chance of the U.S. raising rates while Canada cuts them at the same time, which would cause currency speculators to dump the loonie.

“The loonie will remain in crash position,” he concluded.

BMO officially has one of the more optimistic forecasts for the loonie out there today, calling for it to bottom out around 78 cents, which is only slightly lower than where it is now. (It was trading at 79.27 cents on Wednesday morning, down 0.26 cents.)

Many other banks, including RBC and Credit Suisse, see the dollar bottoming out at 75 cents. But with the currency down some 25 per cent over the past two years, plenty more bearish forecasts about.

Macquarie Group last week forecast the loonie to fall to 69 cents, reflecting the more bearish forecasts of analysts who see little upside to low oil prices and a low loonie for Canada.

“There’s going to need to be even more Canadian dollar weakness than people expect because of the significant loss of competitiveness,” Morgan Stanley analyst Evan Brown told Bloomberg News.

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