Canadian dollar to shed recent gains as U.S. rates climb: Reuters poll

Tue Feb 7, 2017 8:06am EST
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By Anu Bararia

(Reuters) - The recent upsurge in the Canadian dollar will peter out over the coming months as an expected widening gap between steady interest rates in Canada and rising U.S. rates eclipses higher prices for oil, one of Canada's key exports, a Reuters poll found.

The Canadian dollar, known as the loonie, is expected to weaken to C$1.32 per U.S. dollar in a month, versus C$1.31 at Monday's close, the poll of over 50 foreign strategists showed.

Further losses are expected, with strategists predicting it to hit C$1.35 in three months and C$1.36 in six months, similar to the previous month's consensus.

Up 3 percent since the start of the year, the loonie hit a four-month high of C$1.297 in January. It was helped by major oil exporters reducing supply and the greenback tumbling on concerns over U.S. President Donald Trump's stance on world trade and the dollar.

The U.S. dollar marked the fourth straight week of falls, and its worst start to the year in three decades. The Canadian dollar's fortunes have been driven in large part by those of its southern neighbour.

Expected rises in U.S. interest rates will soon offset the impact of higher energy prices, weakening the loonie against its U.S. counterpart, said Ian Gordon, a currency strategist at Bank of America Merrill Lynch.

"Eventually, the market will come around to the idea that the Bank of Canada is not going to hike rates to follow the U.S. Federal Reserve."

Having raised rates once each in 2015 and last year, the Fed is forecast to hike again twice this year. In contrast, the BOC is predicted to stay on hold until at least the third quarter of next year. [ECILT/US] [FED/R] [CA/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