Economist Forecasts Canadian Dollar Will Fall To 60 Cents U.S.

A prominent economist is warning of a sharp depreciation in the Canadian dollar over the coming months.

Economist David Rosenberg said his "conservative estimate" is for the Canadian dollar to fall to 60 cents U.S. His forecast is based on the fact that Canada is "likely facing a series of downgrades" to its AAA credit rating as the total debt in the economy is already an unprecedented 350% of Gross Domestic Product (GDP). The Canadian dollar closed last Friday at just below 71 cents U.S.

Rosenberg, who started Rosenberg Research & Associates Inc. this past January after more than a decade as chief economist at Gluskin Sheff & Associates Inc., said Canada may be cut to a AA credit rating.

The rampant growth in money supply required for the Bank of Canada to fund federal spending by purchasing new bonds will cause international investors to lose confidence in the relative value of the country’s currency, Rosenberg wrote in a report to clients.

"It will be interesting to see how a central bank that does not govern over the world’s reserve currency and a country with a massive balance-of-payments deficit will be able to have all of this largesse find its way onto the Bank of Canada balance sheet" without jeopardizing global investor confidence, he wrote.

Rosenberg, who presciently warned of a U.S. housing bubble in 2005 when he was Chief North American Economist at Merrill Lynch, said "the Great Canadian Debt Surge has come home to roost, and that home is going to be in the nation’s capital."