Canadian dollar to reverse gains on Fed-driven greenback rally: Reuters poll

Thu May 7, 2015 10:40am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Anu Bararia and Leah Schnurr

BENGALURU/OTTAWA (Reuters) - The Canadian dollar's recent rally is nearly over, with forecasters expecting higher interest rates south of the border to drive a resurgence in the greenback and take the loonie back toward its lows of the year, a Reuters poll found.

The Canadian dollar CAD= - which recently has been highly sensitive to the price of oil, a major Canadian export - lost 20 percent from its peak last July to hit a six-year low in March.

From that low, however, the loonie has risen almost six percent, helped by a rebound in oil prices, a string of disappointing U.S. economic data and a more upbeat outlook from the Bank of Canada.

Even though the currency will continue to find support from higher crude prices in the near term, it will slip again once the timing of the Federal Reserve's first U.S. interest rate hike in nearly a decade becomes more clear.

"It is more of U.S. dollar strength, really, than Canadian dollar weakness," said CIBC senior economist Andrew Grantham.

The median forecast from 45 foreign exchange strategists has the Canadian dollar CAD=D4 trading at C$1.22 per U.S. dollar, or 82 U.S. cents, in a month, weaker than the C$1.2072 it closed at on Tuesday.

The loonie is expected to weaken further, hitting C$1.25 in three months and C$1.27 in six months, trading not far from there at C$1.26 in 12 months. The currency dropped to C$1.2835 in mid-March, its low for the year so far.

Interest rate differentials will matter in the near term.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch