By Fergal Smith
TORONTO (Reuters) – The Canadian dollar is expected to recover only a small portion of its recent losses in the coming year as the threat of U.S. trade tariffs dampens the outlook for Canada’s export-reliant economy, a Reuters poll shows.
The average forecast of 36 currency analysts in the Dec. 2-4 poll predicted the rate would rise 0.3% in three months to 1.4034 per U.S. dollar, or 71.26 U.S. cents, from the level of 1.36 that was expected in a poll last month.
The currency was forecast to rise 0.4% to 1.4020 within a year, up from 1.32 previously. The currency has fallen by almost 5% since the end of September.
“If the U.S. were to impose tariffs above 25% on Canada, the most significant adjustment would likely be through the currency,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets. “That would help offset some of the tariffs, but not all.”
Newly elected US President Donald Trump has promised to impose a 25% tariff on imports from Canada and Mexico until they control drug and migrant smuggling across the border. Canada sends about 75% of its exports to the United States, including oil and cars.
The Bank of Canada has said that if Trump follows through on his threat, it would impact both economies and the central bank would include it in its economic forecasts.
Investors expect the central bank to continue its easing campaign in a policy decision on Wednesday. The BoC has cut its benchmark interest rate by 1.25 percentage points since June to support the Canadian economy, lowering borrowing costs to 3.75%.
Canadian Prime Minister Justin Trudeau has promised Trump that Canada will tighten controls over the long, undefended shared border. Still, the threat of tariffs alone could hold back business investment.
“Until there is clarity on the free trade front, and especially on free trade with the US, it will be difficult for some companies to put new money to work in Canada,” Reitzes said.
(Other stories from Reuters December currency poll)
