Canada's dollar will remain lower for longer despite some help from the federal government's fiscal spending plan over the next year, says CIBC World Markets.
The loonie has been on a downward trend since early May, when it nearly touched 80 cents against the U.S. dollar. More recently, the currency is trading at 74.34, its lowest level since last April.
Economists at CIBC World Markets say that the downward trend is not quite done yet, and will bottom out in the first quarter of next year when the loonie slips below 72 cents.
"There's only so much economic juice to be squeezed out of indebted consumers, and government policy is starting to lean against a further housing boom," a team of CIBC economists wrote in a note to clients.
There had been some hope that the loonie would get a boost from government fiscal spending over the next year, as well as stronger exports that economists had hoped to see because the Canadian dollar has been so weak in the past two years.
But the latter has failed to materialize - casting doubt on exports helping the Canadian economy anytime soon.
"With oil prices still too tepid, a weaker Canadian dollar, encouraged by dovish monetary policy, has been seen as key to shifting growth towards non-energy exports and related capital spending," the economists write. "Disappointments on that front have only exacerbated that trend to a softer loonie."
CIBC World Markets predicts there won't be much of a rebound for the loonie over the next two years. The call is that even in 2018, the loonie will average 72.99 cents against the U.S. dollar.