By Fergal Smith
TORONTO (Reuters) – The Canadian dollar is expected to rise against its U.S. counterpart in the coming year as lower borrowing costs boost the domestic economy, but the outcome of the U.S. presidential election could dent the outlook, a Reuters poll shows .
According to the average forecast of 40 currency analysts in the period from Oct. 28 to Nov. According to the first poll, interest rates will rise 2.4% at the end of January to 1.36 per US dollar, or 73.53 US cents, from the 1.3514 expected in last month’s poll.
The currency was forecast to rise 5.5% to 1.32 within a year, up from 1.3275 previously.
“Our forecast for a stronger Canadian dollar is based on the fact that the Fed should catch up on its rate-cutting cycle and the Canadian economy should recover quite strongly as the Bank of Canada cuts rates,” said Kyle Chapman, FX market analyst at Ballinger. Group in London.
On Tuesday, Bank of Canada Governor Tiff Macklem said the central bank is starting to see the impact of the easing on the economy. The BoC has lowered its benchmark interest rate by one and a half percentage points to 3.75% since the beginning of June.
The Canadian economy is particularly sensitive to interest rate levels due to a short mortgage cycle and high household debt. According to OECD data, household debt was by far the highest in the G7 at 184% of net disposable income in 2023.
The Canadian dollar weakened about 3% in October, its biggest monthly decline since September 2022. It hit a nearly three-month low at 1.3945 on Thursday.
A potential wildcard for the currency is the outcome of Tuesday’s US presidential election. Republican candidate Donald Trump has proposed far-reaching tariffs on imported goods. Canada sends about 75% of its exports to the United States.
“The election is a fork in the road… If we get a Trump presidency, the recovery might not be nearly as strong as we now expect,” Chapman said.
(Other stories from Reuters November currency poll)
