Canadian dollar seen crawling off 12-year low in 2016: poll

Thu Jan 7, 2016 9:22am EST
 
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By Anu Bararia and Fergal Smith

BENGALURU/TORONTO (Reuters) - A long sell-off that drove the battered Canadian dollar to a 12-year low this week is expected to end this year, a Reuters poll showed, although an expected extended period of easy monetary policy will keep a lid on any bounce back.

The currency weakened almost 20 percent against the U.S. dollar in 2015, its worst year since the global financial crisis, as sliding oil prices drove its economy into a modest recession. The dollar, also called the loonie, is down by nearly one-third since crude prices first began to fall in mid-2014.

Bank of Canada Governor Stephen Poloz, however, has said growth should rebound in time, partly because of stronger demand for Canadian exports from the United States - its biggest trading partner.

"The Canadian dollar as a floating exchange rate really acts as a shock absorber," said Shaun Osborne, chief FX strategist at Scotiabank, who expects it to trade around where it is now by the end of the year.

"It helps the economy adjust to the new reality of weaker commodity prices and the need for the non-resource side of the economy to strengthen."

The currency is expected to trade at C$1.39 against the greenback in a month, a bit stronger than Wednesday's 12-year low close of C$1.4071, according to the median forecast in the poll of 50 foreign exchange strategists.

It will appreciate to C$1.38 in three months, C$1.37 in six months, still down from the C$1.35 forecast for both horizons in the previous poll. The loonie is expected to recover modestly from there to C$1.34 in a year, roughly the same prediction as in the last poll.

Estimates in the latest survey ranged from a fall of 5 percent to a gain of 16 percent over the coming year. Saxo Bank, the most bearish on the Canadian dollar in the poll, is forecasting it at C$1.48 in 12 months.   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