C$ set to rebound as higher oil offsets diverging rate outlooks - Reuters poll

Tue Nov 1, 2016 9:18am EDT
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By Fergal Smith

TORONTO (Reuters) - The Canadian dollar will strengthen over the coming year, paring some recent losses, as higher oil prices offset higher interest rates from the U.S. Federal Reserve and a more dovish stance from the Bank of Canada, a Reuters poll found.

The currency is forecast to trade at C$1.3400 in three months, the poll of more than 50 foreign exchange strategists showed, little changed from Monday's close of C$1.3408.

Strategists then expect the loonie to strengthen to C$1.3100 in a year, weaker than the C$1.3000 level estimated a month ago.

"We have a strengthening path for crude prices and that's really the primary driver behind the forecast for CAD (Canadian dollar) strength," said Eric Theoret, currency strategist at Scotiabank, who expects the loonie to strengthen to C$1.2500 in 12 months.

Brent crude futures are forecast averaging $57.08 in 2017, versus $44.78 in 2016, a recent Reuters poll showed.

The expected rebound in the Canadian dollar comes after a 3 percent drop since the Bank of Canada said on Oct. 19 that it had considered cutting interest rates at its policy meeting. On Friday it touched a seven-month low of C$1.3434.

Some strategists expect the central bank's more dovish stance to pressure the Canadian dollar still more in the coming months.

"If we do see a rate cut in Canada ... there is a chance from that risk perspective that the Canadian dollar weakens much more than we currently envision," said Jimmy Jean, senior economist at Desjardins.   Continued...

The new Canadian five and 10 dollar bills, made of polymer, are displayed with the previously released 20, 50 and 100 dollar notes following an unveiling ceremony at the Bank of Canada in Ottawa April 30, 2013.     REUTERS/Chris Wattie