Canadian dollar seen weakening back to U.S. dollar parity: poll

Wed Sep 5, 2012 12:43pm EDT
 
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By Solarina Ho

TORONTO (Reuters) - Canada's dollar will give back recent gains against its U.S. counterpart, according to Reuters poll released on Wednesday, with the stumbling global economy expected to hurt demand for the commodity-linked currency.

The median forecasts of 49 global foreign exchange strategists saw the Canadian dollar weakening to parity with the greenback in one, three, six and twelve months from now. On Wednesday it traded as low as C$0.9919 to the U.S. dollar, or $1.0082.

"The Canadian dollar looks a bit elevated given the state of global growth, and there may simply be too much optimism about how well the various policy initiatives in the U.S, Europe and Asia are going to do in terms of reviving growth," said Avery Shenfeld, chief economist at CIBC World Markets.

The Canadian bank forecast the currency would trade at C$1.02 versus the U.S. dollar, or $0.9804 in three months.

The Canadian dollar rallied to C$0.9843, or $1.0160, three times in recent weeks - its strongest level since early May - buoyed by hopes that the U.S. and European central banks will take decisive action to boost domestic growth.

The European Central Bank is facing mounting pressure to reduce crippling borrowing costs for southern euro zone states. It is widely expected to outline its strategy in a key meeting on Thursday.

"Events as they unfold in Europe do suggest without government input and stimulus that the economy there will falter and the expectation is that one country at the very least is likely to exit the euro zone," said Jack Spitz, managing director of foreign exchange at National Bank Financial, which expects the Canadian dollar to weaken to C$1.04 toward the end of this year.

U.S. SITUATION "GRAVE"   Continued...

 
A Canadian five-dollar bill is seen in this posed photograph in Montreal March 10, 2011. REUTERS/Shaun Best