Canadian dollar to weaken further on monetary path split, low oil prices: poll

Wed Dec 2, 2015 9:17am EST
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By Anu Bararia

(Reuters) - The Canadian dollar is likely to start 2016 even weaker than thought a month ago as commodity prices remain depressed and the Bank of Canada takes a different monetary policy path from its U.S. counterpart, a Reuters poll of currency strategists showed.

The Canadian dollar CAD=D4 tumbled to its lowest in 11 years in September following a more than year-long crash in oil prices, two interest cuts from the Bank of Canada this year and a brief recession in the first half.

But with the economy falling shy of the central bank's growth estimate in the third quarter and oil prices expected to remain weak, the Canadian dollar will likely carry its losing streak through to next year. [O/POLL]

The expected start of a U.S. Federal Reserve rate hike campaign on Dec. 16 could encourage investors to further reduce their Canadian dollar exposure in favor of the greenback.

"It basically is a story of soft commodity prices combined with the contrast between growth and an interest rate rise in the U.S., and sluggish growth and stable interest rates in Canada," said Shaun Osborne, chief foreign exchange strategist at Scotiabank.

The Canadian dollar is expected to trade at C$1.34 against the greenback in a month, around the same as Tuesday's close, according to a Reuters poll of over 40 currency strategists whose forecasts ranged from C$1.29 to C$1.40.

The poll showed the loonie will depreciate further to C$1.35 in three months and six months, a downgrade from C$1.33 and C$1.34 in the previous poll.

From there, the currency is forecast to recover modestly to C$1.33 in a year, the same as in the last poll.   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