By Fergal Smith
TORONTO (Reuters) – The Canadian dollar is expected to continue its recovery against its U.S. counterpart in the coming year as lower borrowing costs boost economic growth in Canada and increase investors’ appetite for risk, a report shows. Reuters poll.
The Canadian currency has risen 3.3% since hitting a nearly two-year low of 1.3946 per U.S. dollar, or 71.71 U.S. cents, in August.
The average forecast of almost 40 currency analysts for the period September 30 through October. Poll 2 showed the loonie consolidating these gains in three months, ending 0.1% lower at 1.3514, but remaining stronger than the 1.3650 expected in a September poll.
The coin was forecast to rise 1.7% to 1.3275 within a year, up from the previously seen 1.3333.
The Bank of Canada is expected to continue cutting its benchmark interest rate in coming months, having cut it by 75 basis points to 4.25% since June, while the US Federal Reserve began its own easing campaign in September.
The Canadian economy is particularly sensitive to interest rates. Its mortgage cycle is shorter than some other major economies, while household debt as a share of net disposable income is by far the highest in the G7 at 184% in 2023, according to OECD data.
“Domestic rate cuts will start to noticeably boost the domestic economy, while Fed easing should also boost risk conditions in general, all of which provides a constructive backdrop for the crazy in the new year,” said Nick Rees, senior FX market. analyst at Monex Europe.
Canada is a major producer of commodities, including oil, so its currency tends to be sensitive to shifts in investor sentiment. A possible wildcard is the outcome of the American elections in November.
“We look for a modestly stronger crazy in 2025 as the U.S. dollar loses some of what it gained by being a carry receiver,” Avery Shenfeld and Katherine Judge, economists at CIBC Capital Markets, said of the interest income that investors earn by buying the dollar. and selling currencies with lower interest rates.
“US fiscal and trade policies could change that view after the US elections,” the economists added in a note.
“But at this point, there is too much uncertainty about who will take over the White House, the composition of Congress, or which presidential campaign promises will actually see the light of day, to take any of that into account.”
(Other stories from Reuters October currency poll)
