Reuters poll: Canadian dollar's rout may be close to an end - strategists

Wed Aug 5, 2015 10:28am EDT
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By Anu Bararia

(Reuters) - The Canadian dollar's rout is probably near an end, a Reuters poll of foreign exchange strategists showed, but with energy prices falling and the economy likely in recession, the path of least resistance is down.

Canada's commodity-driven currency has lost nearly 14 percent against the greenback since the start of 2015 as its economy shrank in the first three months of the year, and quite possibly in the April-June as well.

That, along with tumbling oil prices and a stronger U.S. dollar in the run-up to the first policy tightening by the Federal Reserve in nearly a decade, sent the Canadian currency crashing to C$1.32 on Tuesday, its weakest since late 2004.

The poll of 50 foreign exchange strategists forecast the Canadian dollar CAD=D4 at C$1.31 in one month and six months and C$1.30 in a year, a strong downgrade from the C$1.25, C$1.27 and C$1.26 medians in last month's poll.

Still, there is significant risk the currency could weaken further due to the divide in predicted monetary policy paths between Canada and the U.S.

"The market is partially priced for another Bank of Canada rate cut ... but where we get the real divergence in the near term is that we expect the Fed to start hiking in September, which is less than 50 percent discounted by the market at the moment," said Adam Cole, global head of FX strategy at RBC Capital Markets.

"The risk of further rate cuts continues to overhang the market, and with commodity prices making new lows, that dynamic is still negative."

Bank of Canada Governor Stephen Poloz has maintained his optimism the economy will regain momentum in the current quarter supported by stronger U.S. demand for non-energy exports, and most economists in a recent Reuters poll agreed. [ECILT/CA]   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