Two of Canada’s leading investment banks tell us where they are forecasting the Canadian dollar to head in 2015 and 2016.

The latest analysis comes as Canadian economic data was seen to weaken sharply in early 2015 reflecting the hit from lower energy prices and reduced confidence.

This has had a broadly negative impact on the local currency in the run-up to the April Bank of Canada meeting, the outcome of which has given the currency a temporary boost.

Going forward the outlook for the CAD hinges on the following domestic factors:

Will Canadian growth pick up in the latter half of the year?Will the BoC cut rates again?Will energy prices pick up once more?We explore some of these issues and the likely trajectory of CAD in this piece.

CAD Rates to Reference: BoC Boost

At the time of writing the US dollar to Canadian dollar exchange rate (USD-CAD) is trading 1.23% lower on a day-to-day comparison at 1.2331.The pound to Canadian dollar (GBP-CAD) is at 1.82805, this is a percent lower.The euro to Canadian dollar (EUR-CAD) is 1.25% lower at 1.3142.The CAD is rallying after the Bank of Canada opted to hold the overnight lending rate at 0.75 and saying the rest of the year will be much better as lower interest rates filter through the economy and exports rebound.

While this is certainly a positive for the near-term CAD outlook the longer-term picture dealt with in this piece remains valid.

Keep in mind that the above quotations are from the inter-bank market. Your bank will affix a spread at discretion when transferring your money. However, an independent FX provider will seek to undercut your bank’s offer, thereby offering up to 5% more currency in some instances. Find out more.

Outlook for the US v Canadian Dollar

USD-CAD is forecast to maintain an upward trajectory in coming months.

This scenario should not come as a complete surprise owing to the overall consensus amongst analysts that the bull-run in USD is not yet complete.

Indeed, analysts at BMO Capital tell us that the typical USD rally tends to last for about 6-7 years suggesting the Buck has much further to run.

It is also worth pointing out at the same time that some currencies will be more immune to USD strength than others.

With the Bank of England tipped to raise interest rates in coming months the pound sterling is one such currency that may have seen the worst pass against the USD.

Can we say this about the Canadian dollar?

“We expect USDCAD to rise and remain in a 1.24 - 1.28 range over the next quarter as commodity prices remain weak but the Bank of Canada remains on hold,” says analyst Gregory Anderson at BMO in Canada who hold a negative CAD outlook.

As we can see from the graphic above, it appears BMO are ahead of consensus when it comes to the strength of the USD-CAD’s climbs.

This Canadian bank is expecting USDCAD to rise to about 1.32 at the time of the first Fed rate hike, which they expect in September.

It is also assumed that the Bank of Canada is to remain on hold at a 0.75% base rate across the entire 1-year horizon, even as the Fed hikes 3 times during that period.

Support for the Canadian dollar will however be found as oil and other commodity prices rebound moderately in H2 of 2015.

By way of contrast, TD Securities forecast the USD-CAD at 1.27 in September, quite some way off the more aggressive BMO prediction.

TD note the exchange rate at 1.30 by year end. The peak is seen at 1.33 in the first half of 2016, from where the Canadian dollar is tipped to strengthen once more.

The Pound Sterling v Canadian Dollar Forecast

Turning to the CAD’s chances against the British pound, TD Securities tell us they are predicting the GBP-CAD rate to rise to 1.81 by the end of the year.

A maximum of 1.93 is pencilled in, this being reached in the first quarter of 2016.

TD Securities say they are predicting the Canadian economy to pick up steam in the second half of the year, something that would explain a less aggressive stance than that at BMO.

A rebound in economic performance will undoutedly aid the Canadian currency.

However, GBP strength is preferred as the Bank of England will likely be looking to enter a cycle of interest rate rises; something that will boost GBP-CAD.

That the GBP-CAD peaks in the first half of 2016 suggests that analysts are predicting the Canadian economy to overcome much of its current weakness.

Indeed, if this were to be the case we could start to hear talk of the Bank of Canada looking to reverse its own 2015 interest rate cut - an undeniable positive for the local currency.

The same positivity concerning a rebound is however not expressed at the IMF who have just updated their latest economic forecasts.

In their spring World Economic Outlook, the IMF forecast that Canada’s real gross domestic product will grow by 2.2 pct this year and 2.0 pct next year.

Both projections are down by 0.1 pct from the financial institution’s previous forecast, issued in January.

A further note on sterling-CAD, be aware that we could see some interesting volatility surrounding all sterling exchange rates around the time of the General Election.

However, we and many in the market expect the impact to be temporary and any dips in GBP should be viewed as a buying opportunities for those with an appetite for risk.