Canadian dollar to weaken on outlooks for dim growth, higher U.S. rates: poll

Thu Jul 2, 2015 9:30am EDT
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By Anu Bararia and Leah Schnurr

BENGALURU/OTTAWA (Reuters) - The Canadian dollar is likely to fall further in the coming months, hit by both a weak domestic economic outlook and an anticipated rise in interest rates in the United States, a Reuters poll showed.

Oil prices are also expected to remain weak for the rest of the year amid a persisting global supply glut, and is likely to continue to weigh on the commodity-linked loonie. [O/POLL]

Still, analysts expect the currency will not fall as much as it did in March, when it hit its lowest levels since early 2009.

After a disappointing first quarter, the Canadian economy contracted further in April, raising speculation the Bank of Canada may cut interest rates again to spur growth, at a time when the U.S. Federal Reserve is poised to hike rates, possibly by September. [ECILT/US]

Such a divergence in monetary policy in the two key trading partners would likely send the loonie lower as investors favor the greenback.

The median in a poll of 49 foreign exchange strategists forecast the Canadian dollar CAD=D4 to trade at C$1.248 against the U.S. dollar, or 80.16 U.S. cents, a month from now. That would be stronger than Wednesday's official close of C$1.2586.

Speculators are short the Canadian dollar by more than a net 17,000 contracts, up by more than 5,000 in the last week, as traders took out longs and added to short positions, according to CFTC and Thomson Reuters data.

Market analysts had expected a resurgent U.S. dollar to keep the loonie subdued but it is not just a U.S. dollar strength-driven story, said Andrew Grantham, senior economist at CIBC.   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