BMO forecasts Canadian dollar to slip to 93 cents US by end of the year

The Bank of Montreal is predicting that the loonie will slip to as low as 93 cents US by the end of the year as the global economic slowdown weighs on commodity prices that support the Canadian dollar.

BMO said in a report Wednesday that it expects the loonie to remain around that level until the second half of next year, before global growth helps ro push it back to parity with the U.S. dollar.

"While market action over the past few days has been positive in the hope of a broad European solution, we expect the crisis to linger well into 2012, if not longer," the report said.

"Even if European leaders are able to satisfy markets with bold action, global growth isn't likely to rebound quickly, which should weigh on commodity prices and the loonie. Indeed, European economies are likely to be hamstrung by austerity measures and restructuring for at least the next few years."

The Canadian dollar was down 0.42 of a cent to 97.66 cents U.S. in trading Wednesday.

Trading in the Canadian dollar has been volatile in recent days. The currency lost about five cents against the U.S. dollar last week amid the turmoil of the European government debt crisis.

The BMO forecast suggested that the loonie would remain near 95.2 cents U.S. until the second half of 2012, by which time the global economy would start to improve.

"Accelerating global growth will provide support to the Canadian dollar, pushing it back to parity by the end of 2012," the report said, noting that it would appreciate further as the Bank of Canada raised rates ahead of the U.S. Federal Reserve .

However, once the U.S. Federal Reserve starts hiking interest rates in the second half of 2013, the loonie would be expected to weaken, settling towards a long-run value of 95.2 cents to 90.9 cents U.S.