Canadian dollar to weaken as policy path diverges with U.S.: Reuters poll

By Anu Bararia

BENGALURU (Reuters) – The Canadian dollar will weaken over the coming months, pressured by an uncertain economic outlook and the prospect of higher interest rates in the United States even as the Bank of Canada stays on the sidelines, a Reuters poll showed.

While the loonie may gain a little in the short term on expectations of stronger first-quarter economic growth in Canada, the survey of close to 50 foreign exchange strategists showed it will weaken to C$1.35 per U.S. dollar in three months and close the year at the same level.

It is already 3 percent lower than at this time last year.

Even as the U.S. Federal Reserve raised rates in March – its second hike in three months – and plans to hike twice more this year, the Canadian central bank is not expected to boost rates until 2018. It cut them twice in 2015. [CA/POLL]

“It is essentially a policy differential story,” said Shaun Osborne, chief currency strategist at Scotiabank.

“Some people have started … thinking that perhaps with the Federal Reserve now appearing a bit more fully committed to raising interest rates, that may mean something for Canada in the near- to medium-term … which I think is way too premature.”

Even though respondents expected the loonie to rise marginally in one month to C$1.34 from Wednesday’s close of C$1.3434, the forecast range remained wide, running from C$1.28 to C$1.39.

“We are possibly looking at the early stages of a renewed sell-off in the Canadian dollar in the next few weeks,” Osborne said. “There is just a lot of uncertainty here at the moment that rather suggests to me, anyway, that some of the strength we have seen in the Canadian data over the past few weeks is probably not sustainable.”

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