By Fergal Smith
TORONTO (Reuters) – The Canadian dollar will become less strong than previously expected in the coming year as the Bank of Canada begins cutting interest rates ahead of the Federal Reserve and the U.S. election increases uncertainty about global trade, a poll shows. Reuters.
According to the average forecast of 40 currency analysts in the May 31-June 4 poll, the rate will change little: 1.37 per US dollar, or 73.17 US cents, in three months, compared to 1.36 in the poll. last month.
It was then predicted that interest rates would rise by 2.5% to 1.33 within a year, while previously expected to be 1.32.
Canada’s central bank will cut interest rates to 4.75% later on Wednesday, according to three-quarters of economists in a separate Reuters poll, which showed three further cuts this year.
Money markets expect an easing of 65 basis points from the BoC this year, compared to 45 basis points from the Fed.
“You’re just too far away from Fed cuts at this point, while the Bank of Canada is more imminent,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets.
“While some of that interest rate differential is already priced in, it is likely to widen somewhat further, which will not be positive for the Canadian dollar in the near term.”
Canada’s central bank may be willing to cut rates three times ahead of the Fed’s first move before a falling currency threatens to jeopardize the inflation outlook, a recent poll of analysts showed.
The U.S. election in November could provide additional headwinds for the Canadian dollar if it leads to higher rates that worsen the outlook for global trade, analysts say.
Canada is a major commodity producer and sends about 75% of its exports to the United States.
“It’s another reason to be cautious about your prospects,” Reitzes said.
(For other stories from the June Reuters currency survey:)
