Expect a lower loonie for longer: BMO

The loonie has once again fallen below 90 cents U.S. and Canadians should get comfortable with the good and bad that comes with it.

Economists are forecasting the loonie, our nickname for the Canadian dollar, will continue to slip below the 90-cent mark well into next year, as the U.S. dollar continues to strengthen.

Bank of Montreal is forecasting the Canadian currency to average around 88 cents in 2015, “possibly ending the year on a weaker note,” chief economist Doug Porter tells Yahoo Canada Finance.

“We have been generally calling for a weaker Canadian dollar for the past year, and we continue to look for some further declines over the next year,” Porter says.

A more bullish U.S. dollar is one reason, alongside softer prices for some of our key commodities, especially oil, which is trading below $100 (U.S.) a barrel.

That the Bank of Canada is no longer warning of interest rate hikes, which is also keeping the loonie lower, Porter said.

While the Canadian dollar has held its own over the past six months, climbing up to around 94 cents this summer despite negative forecasts, experts don’t see another rebound as the U.S. economy continues to gain steam.

“The trend is in favour of a higher U.S. dollar,” George Davis, chief technical analyst, fixed income and currency strategy at RBC Capital Markets, told BNN on Tuesday.

A weaker Canadian dollar is bad news for cross-border shoppers and Canadians travelling south on vacation, but is a boon to many businesses that sell their products in U.S. dollars, such as manufacturers and resource companies.

In fact, a drop in the loonie over a longer period could be what spurs Canadian businesses to invest and spend more, including on hiring new employees. That would boost the overall economy.

“Though the Canadian economy appears to be gaining some momentum … there’s a risk it will subsequently decelerate without a weaker exchange rate to lift exports,” economists from CIBC World Markets wrote in a recent note.“Business capital spending has been the missing ingredient.”

CIBC chief economist Avery Shenfeld says the loonie’s latest weakness came a bit sooner than expected, “likely propelled by the general strength in the U.S. dollar globally.”

But Canadians shouldn’t worry too much about paying more for their upcoming winter vacations south of the border.

Some economists expect the loonie to pick up again before the end of the year, before falling again in the first quarter of 2015.

“It won’t be a one-way trip south for the Canadian dollar,” said BMO’s Doug Porter. “In fact, our year-end forecast for 2014 is quite close to today’s exchange rate.”