Worldwide: Richter Survey Of Bank Forecasts: Foreign Exchange And Interest Rates

Last Updated: September 19 2016
Article by David Hogan

CAD/USD trade in narrow range despite financial markets volatility

In light of the impending global uncertainties, the Fed moderated expectations of any imminent rate hikes at their June 14th-15th meeting, tempering the strength of the USD. However, as the UK shocked markets in a long awaited referendum and voted to leave the European Union on June 23rd, the demand for the Greenback, the world's major reserve currency, surged as investors sought a flight to safety from post-Brexit uncertainties. Additionally, crude oil fell from over $50/barrel before the vote to settle around $45/barrel by July 19th, weakening the CAD. The currency pair traded in a relative narrow range despite no shortage of volatility in the financial markets as a result of these opposing forces, opening at 76.4 and closing at 76.9 US˘/CAD for the month of June.

With respect to the reporting bank forecasts, RBC adjusted the tail end of its forecast from 80.0 to 76.9 US˘/CAD to reflect a more bearish 2017 year end outlook for the Loonie. Additionally, National made several downward adjustments, including significantly lowering their 2016Q3 forecast from 80.0 to 73.0 US˘/CAD. According to the narrative from National, the adjustments are intended to reflect the USD benefitting from periods of heightened uncertainties and stress in financial markets due to its safe-haven properties. The remainder of the forecasting banks left their outlooks relatively unchanged, but it should be noted that both CIBC and Desjardins published their forecasts on June 20th, prior to UK's referendum, so any post-Brexit adjustments on their behalf remain to be seen.

Fears renewed on future of Eurozone; CAD/EUR outlook uncertain

The results of the UK referendum on June 23rd renewed fears as to the future of the European Union. Questions surfaced whether other countries may hold their own referendums, raising additional uncertainties as to the future value of the EUR. TD revised its forecasts to reflect a relatively weaker EUR at all points through 2017, attributing the British referendum as a game changer for the UK that will likely drag down European growth substantially. Further, in its publication, BMO raised the concern that Brexit may inspire other countries to hold their own referendums, and that uncertainties and low inflation will likely keep the ECB on high alert, and thus the EUR grounded. As a result the EUR's perceived weaknesses, BMO sees the CAD trading at 74.6 EUR˘/CAD by the remainder of this year.

For the current publication, the reporting banks, with the exception of CIBC, now largely anticipate the CAD to either remain near current valuations or strengthen against the EUR through 2017. Although CIBC appears as the outlier, it should be reiterated that CIBC's forecasts were published prior to the Brexit vote, and as such will be worth monitoring to determine if they will be revised to reflect these new economic fundamentals.

Hike expectations grow less likely in midst of global economic uncertainty

On June 28th, Fed Governor Jerome Powell spoke on monetary policy considerations in light of recent economic developments. In a dovish tone, he mentioned monetary policy will need to remain supportive of growth and that Brexit has the potential to create new headwinds for the U.S. economy. Thus, it is not surprising to see downward revisions on the expectations of the level of future Fed rate hikes. As for the Canadian overnight rates, the reporting banks maintained or reduced their policy rate expectations, with only CIBC and BMO forecasting a rate hike through 2017. National, one of the banks that retracted its rate hike forecast by 2017, said despite anticipating the Canadian economy to accelerate in Q3; the Brexit turmoil now poses more risks to the future economic outlook. Should such uncertainties persist, it will be worthwhile monitoring whether any banks begin to forecast a cut in the Canadian overnight rate.

2 year rate forecasts adjusted downward, reflective of falling yields

The 2 year U.S. Treasury yield slipped to 0.68%, while the 2 year Canadian government bond fell to 0.50% by July 18th as global economic uncertainties continue to reinforce the need for accommodative monetary policy. According to Fitch Ratings, $11.7 trillion of global sovereign debt sported negative yields in June, up dramatically from $1.3 trillion in the prior month. BMO mentions that given the proliferation of sub-zero yields, even record-low yields in America now look attractive to income-seeking investors. The reporting banks all revised down their forecasts for these 2 year government bond yields, with some banks making very significant revisions. RBC for example slashed its 2017 year end 2 year Canadian government bond yield forecast by more than half, from 1.85% to 0.80%, and the equivalent 2 year U.S. Treasury from 1.95% to 1.25%. Going forward, the reporting banks anticipate 2 year yields to eventually pick up through 2017.

Long bond yields fall; likely remain lower for longer

As government bond yields fell across the board, the 30 year Treasury and Canadian long bond were no exception. Long bond yields have now fallen steadily for several consecutive months as the global economic picture has grown more grim and uncertain, and an increasing number of global sovereign debt now yields negative returns. TD comments that markets are likely over attributing the degree of downside pressures to the U.S. economy related to events in Europe and potential risk aversion, adding that the U.S. economy is much better positioned on economic fundamentals than its peers. This picture is likely going to keep long bond yields lower for longer than previously anticipated, but the reporting banks eventually do see yields picking up from current levels as observed in the forecast.

British Pound makes history as UK votes to leave European Union

The British Pound ("GBP") made history as it fell 8.4% in a single day of trading following the UK's vote to leave the European Union. Just to add context, the previous single day drop for the GBP was 4.1% in 1992 when the GBP was forced out of Europe's exchange rate mechanism. Following the vote, Prime Minster David Cameron announced his intention to resign, and the Bank of England stepped in with accommodative intentions by signaling that rate cuts may be on the horizon, and in lowering capital requirements for lenders. Governor Mark Carney dubbed these measures a "major change" in light of a "tougher economic outlook" for the UK. As the UK now enters the lengthy process of negotiating its leave from the European Union, many uncertainties arise. According to BMO, the GBP will remain under pressure, but as the UK's future relationship with the European Union becomes clearer, the GBP will regain some lost ground. The reporting banks show a wide range of forecasts, with Scotiabank and RBC forecasting further weakening of the GBP, while TD, BMO and National anticipate the GBP will regain some ground versus the CAD, but ultimately still fail to return to its valuation just before the referendum through at least 2017. The remaining two banks, CIBC and Desjardins, presented their forecasts prior to the UK's vote, which likely explains why they have the most favorable view of the GBP relative to the other reporting banks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions