According to a Reuters poll, the Canadian currency will rise less over the next year than previously anticipated since the country’s economy is less sensitive to oil prices and the Bank of Canada may raise interest rates more slowly than the Federal Reserve.
Since the beginning of 2022, the currency’s value versus the US dollar has fallen by more than 7%. Even though it outperformed all other G10 currencies, the fall has largely occurred since the middle of August.
The Canadian dollar would decline over 0. 5% to 1. 37 per US dollar, or 72. 99 US cents, in three months, according to the consensus projection of over 30 currency analysts in the October 28–November 1 poll. This is in contrast to the October forecast of 1. 34.
After that, it was predicted to increase to 1.31 in a year, up from the poll’s prediction of 1.30.
Bipan Rai, head of North America FX Strategy at CIBC Capital Markets, stated, “We believe that when it comes to central bank action, the Bank of Canada will wind up with a lower terminal rate.”
The anticipated disparity between terminal rates in Canada and the United States would most likely need to expand much more, which might push the U.S. currency up versus the Canadian dollar as well as other currencies.
The Bank of Canada raised its benchmark interest rate last week by 0.5 percentage points to 3.75 percent, falling short of requests for another 75 basis point hike as it predicted the economy would stagnate over the next three quarters due to the oversized housing market.
Investors anticipate that the BoC will set a terminal rate, or highest level for interest rates, of 4. 25% in the upcoming months.
That is about three-quarters of a percentage point below what the Federal Reserve’s terminal rate is predicted to be.
Though economists predict that the price of oil, one of Canada’s key exports, may have less of an impact on the loonie than in the past due to a potential reduction in global economic uncertainties next year.
Despite losses for the loonie this year, oil CLc1 has increased by nearly 18%, while rising by 55 percent in 2021.
According to Royce Mendes, head of macro strategy at Desjardins, “all of the volatility in oil prices tends to transmit less into volatility in the currency today than it has in earlier periods because the Canadian economy is less levered on the energy industry.”
When oil prices are high, there is less desire to reinvest funds in the oil field, which leaves less opportunity for the currency to decline when oil prices are low.
Forecasts for the loonie are lowered as Bank of Canada trails the U.S. Fed in peak-rate bets, according to a poll.
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