No relief ahead for the battered Canadian dollar: Reuters poll

Wed Oct 1, 2014 11:20am EDT
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By Leah Schnurr

TORONTO (Reuters) - The coming year is unlikely to bring any relief to the weakening Canadian dollar as the Bank of Canada's neutral stance prompted analysts in a Reuters poll to renew their pessimistic forecasts for the currency.

A number of factors are working against the loonie, not least of which is the growing view that the domestic central bank could be comfortable sitting on the sidelines even as the Federal Reserve starts to raise U.S. interest rates next year.

Investor enthusiasm for the greenback has also hurt the loonie in recent months and that is expected to continue to be a major driver of the currency pair as the U.S. economic recovery picks up steam.

"I think it has everything to do with what's happening south of the border and really very little to do with Canada," said Brad Schruder, director of foreign exchange sales at BMO Capital Markets in Toronto.

Between the positives of the economy and monetary policy working in the greenback's favor, "there's just no way the Canadian dollar has the wingspan to battle such a heady U.S. dollar headwind, we just don't have the muscle to do it," Schruder said.

The Canadian dollar sold off through January and February, starting the year as many investors' favorite short position.

While it recovered through the spring and early summer, the currency has been on a downward path since July and lost more than 4 percent over the last three months, its worst quarter since the third quarter of 2011.

Still, the Canadian dollar is expected to get a reprieve in the short term. The poll of 47 currency strategists found the U.S. dollar is expected to trade at C$1.11 in a month, which would put the value of one loonie at 90.09 U.S. cents.   Continued...