Canadian dollar's respite from slide unlikely to last

Wed Apr 2, 2014 1:41pm EDT
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By Leah Schnurr

(Reuters) - The Canadian dollar's respite from recent heavy selling will only be temporary as a sluggish domestic economy and a dovish central bank stance are expected to drag the currency lower, a Reuters poll released on Wednesday showed.

Investors dumped the currency at the beginning of the year, and it weakened substantially against the greenback in the first quarter.

The loonie touched a 4-1/2 year low nearly two weeks ago and although it has clawed back some ground since then, analysts say the bounce-back is likely near its limits.

The market will also watch next week's provincial election in Quebec, questioning whether the results will propel the province into a third referendum on separating from Canada.

The risk from the election could be short term, however, as opinion polls show the governing Parti Quebecois, which wants an independent Quebec, would lose if the election were held now.

Analysts were more bearish on the currency than they were in a Reuters poll just a month ago, forecasting it will drop to C$1.14 in a year, weaker than the C$1.13 that was forecast in March's poll.

"Fundamentally, we think the Canadian economy is lagging behind a little bit at the moment and that will be reflected in the exchange rate," said Shaun Osborne, chief currency strategist at TD Securities.

"We've been negative on the Canadian dollar for a while."   Continued...

Canadian loonies, one dollar coins, are displayed in this posed photograph in Toronto, October 10, 2008. REUTERS/Mark Blinch