Reuters Poll: Canadian dollar to slip as U.S. rate expectations heat up

Thu Mar 2, 2017 10:59am EST
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By Anu Bararia

(Reuters) - The Canadian dollar will fall over the coming months on expectations that the U.S. Federal Reserve will continue raising interest rates, possibly as soon as this month, while the Bank of Canada stays on hold until 2018, a Reuters poll predicted.

While the Canadian currency may gain a bit in the short term, the survey of more than 50 foreign exchange strategists taken over the past week showed it weakening to C$1.345 per U.S. dollar in three months from C$1.3325 at Wednesday's close.

The widening gap between the two nations' monetary policies has been highlighted in several Reuters polls and is intensifying after Fed policymakers have fanned bets of a near-term rate hike in recent days. [ECILT/US][CA/POLL]

Record U.S. stock-market highs following President Donald Trump's address to Congress that still offered few details on stimulus plans sent the Canadian dollar to a five-week low against the greenback.

"We expect the rate differentials to widen out in the (U.S.) dollar's favor as the Bank of Canada remains on hold this year," said Scotiabank chief FX strategist Shaun Osborne.

Forecasters see the loonie trading around C$1.36 by year-end, the same estimate as in February's poll. Wells Fargo, the top forecaster in Reuters FX polls in 2016, expects the currency to weaken slightly more than 4 percent over the coming year to C$1.39.

"The Canadian dollar is somewhat overvalued relative to U.S.-Canada rate differentials right now," said Wells Fargo currency strategist Erik Nelson. "There is room for some adjustment to the downside."

Liquidation of some long Canadian dollar positions could add to volatility.   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