The Canadian dollar has likely done about as much falling as it's going to do, according to an updated currency forecast from CIBC World Markets.

"It's now likely that the loonie has seen the worst of the depreciation, even if it has one slight dip ahead," says a currency outlook released by the bank's economists Wednesday.

The bank said its near-term forecast for the Canadian dollar has improved because oil prices have bottomed out and the U.S. Federal Reserve will likely hold back from imposing most of the interest rate hikes this year that markets had expected as recently as two months ago.  

"Market volatility and a string of soft data has seen the [Fed] take a step back from their hiking cycle," CIBC said.

CIBC economists expect oil prices to recover later this year as demand increases. "That would provide at least a partial cover for the loonie from wider interest rate differentials."

Stimulus spending key

Stimulus spending by the Trudeau government will also play into the value of the dollar, CIBC said, with the March 22 budget outlining the extent of that support.

"The use of deficit spending by the Liberal government to stimulate the economy means that the pressure on the currency from potential monetary easing has been significantly reduced," the bank's outlook said.

The report cites a technical analysis from the Bank of Canada, which found that $10 billion worth of fiscal stimulus spending by Ottawa does more to boost GDP than a full percentage point reduction in the key overnight lending rate. 

CIBC notes that since the Bank of Canada left its key rate unchanged on Jan. 20, the Canadian dollar has appreciated from below the 69-cent US level by more than five per cent. "In part, that strength reflects the perception that Governor [Stephen] Poloz has given way to his boss, Finance Minister Morneau." 

CIBC sees the dollar, which closed at 73.06 cents US today, slipping to 70.4 cents US by the end of June, before beginning a recovery that will take it to 75.2 cents US by mid-2017.