Canadian dollar seen hitting early bumps in 2013, ending year stronger: poll

Fri Jan 4, 2013 9:26am EST
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar is expected to strengthen against the greenback in 2013 given the two countries' divergent interest rate paths, but will likely face some short-term headwinds as U.S. politicians squabble over spending cuts and debt limits.

The median forecast in the poll of 49 economists and foreign exchange strategists, released on Friday, sees the commodity-linked Canadian dollar trading at C$0.99 to the U.S. dollar, or $1.0101, in one month's time.

It is seen changing hands at C$0.98 in three, six and 12 months. It traded at C$0.9920, or $1.0081 early on Friday and gained about 2.7 percent in 2012, according to Thomson Reuters data.

"All in all, the outlook for Canada is good this year and most of that lies on Fed policy juxtaposed against Bank of Canada policy," said Camilla Sutton, chief currency strategist at Scotiabank, who sees a slightly more positive year for the currency than the median forecasts.

But she warned that more immediate risks, such as an impasse in U.S. budget talks that leads to a rating downgrade, could hammer the Canadian currency.

"We have a lot of near term dynamics that are making it a challenge," she said.

Canada's central bank has stuck to a hawkish line on rates, making it an outlier among major global economies that are mostly slashing rates or printing money to stimulate growth.

But while it has said since April that it plans to raise borrowing costs eventually, it has not yet acted on that statement, leading National Australia Bank's Nick Parsons to deem the stance "all gong and no dinner."   Continued...

A man holds the new Canadian 100 dollar bill made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch