CAD Outlook

Renewed concerns about the health of the Chinese economy and the slowdown in global demand will exert further downside pressure on the price of oil in the medium term, amid ample supply globally. The effects of low oil prices are still being felt in the Canadian economy, which officially slid into recession in Q2. Continued weakness in the energy sector has depressed investment, which is expected to remain subdued for the rest of the year. 

Canadian oil producers face very high extraction costs (one of the highest among oil producers), and tight margins due to low oil prices will likely continue to slow capital expenditure, hurting aggregate investment even further. As such, additional monetary policy easing will be needed to partially compensate for a very weak investment outlook. 

"CAD is barely cheap according to our BEER model, with plenty of room to fall. We expect the loonie to weaken against the dollar, reaching 1.35 by year-end," notes Barclays.