The outlook for the loonie in 2023 largely depends on commodity prices, how the U.S. dollar fares, and whether central banks are successful in avoiding a major recession, experts said.
The Canadian dollar recently rose to its highest level in more than two months against the U.S. dollar, which gained strength Friday after a stronger-than-expected jobs report.
However, analysts are predicting some further weakness in the U.S. dollar in 2023. CIBC, in a Jan. 23 report, said the currency will likely weaken in 2023, which may result in Canadian dollar strength in later quarters.
Analysts at several major Canadian banks predict the U.S. dollar will be worth around $1.30 Canadian by the end of 2023, while it's currently closer to $1.33.
The Canadian dollar's outlook for the year is highly contingent on external developments, with commodity prices and valuation potential positives for the dollar, Scotiabank said in a report early January.
The bank said while U.S. dollar weakness later in the year will be a boost for the loonie, the Canadian dollar is expected to under-perform against many of its G10 peers this year.
If the economic downturn provoked by central banks' policies is harsher than expected or hoped for, that would weaken the loonie, said Michael Greenberg, senior vice-president and portfolio manager at Franklin Templeton Investment Solutions.
Meanwhile, a soft landing would mean strength for the Canadian dollar, he said.
This report by The Canadian Press was first published Feb. 6, 2023.