Fergal Smith
TORONTO (Reuters) – The Canadian dollar will strengthen less than previously expected in the coming year if the Bank of Canada starts cutting interest rates ahead of the Federal Reserve and U.S. elections increase global trade uncertainty, a Reuters poll showed.
The average forecast of 40 currency analysts in the May 31-June 4 survey was for the rate to change little in three months to 1.37 per U.S. dollar, or 73.17 U.S. cents, compared with 1.36 in last month’s survey.
Then it was predicted that over the year it would grow by 2.5% to 1.33 against 1.32 previously expected.
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 that showed three more cuts this year.
Money markets expect the Bank of Canada to ease policy by 65 basis points this year, compared with 45 basis points from the Fed.
“You’re too far away from Fed cuts at this point, while the Bank of Canada is more imminent,” said Benjamin Reitses, Canadian rates and macro strategist at BMO Capital Markets.
“While some of this interest rate difference is priced in, it is likely to be even larger, which will not be positive for the Canadian dollar in the short term.”
Canada’s central bank would be willing to cut interest rates three times ahead of the Fed’s first move before currency weakness threatens inflation, a recent survey of analysts found.
The November U.S. election could pose a further headwind for the Canadian dollar if it leads to higher tariffs that worsen global trade prospects, analysts say.
Canada is a major producer of goods and sends about 75% of its exports to the United States.
“That’s another reason to be careful what you think,” Raitses said.
(As for other stories from the June Reuters currency survey:)