Canadian dollar to dip near-term as economy weakens, Fed hikes: Reuters poll

Thu Jun 2, 2016 8:17am EDT
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By Fergal Smith

TORONTO (Reuters) - The Canadian dollar is expected to weaken in the near-term on prospects of slower economic growth and a U.S. interest rate hike this month or next, a Reuters poll found, but an eventual oil price recovery is set to bolster the currency over the longer term.

The currency has fallen nearly 5 percent since reaching a 10-month high at C$1.2461 on May 3 as economic data turned sour after a strong start to the year. Meanwhile, wildfires disrupted oil production in Alberta, and speculation has increased that the U.S. Federal Reserve will raise interest rates this summer.

The Canadian dollar is likely to weaken against the greenback "if the Fed really is in play here," said Scotiabank Chief Currency Strategist Shaun Osborne.

He expects events, such as a June 23 British referendum on whether to leave the European Union, to increase currency volatility. [GBP/POLL]

The Reuters poll showed the Canadian dollar weakening to C$1.3140 in a month from Wednesday's close of 1.3075, recovering to C$1.3000 in six months and trading there in a year, matching the 12-month forecast in May.

A more sluggish economy is likely to contribute to near-term weakness in the currency.

"Even before the Alberta wildfires, we were looking for a slowdown in Canadian economic growth in (the second quarter) after a surprisingly strong start to the year," said RBC Capital Markets Chief Technical Strategist George Davis.

The Bank of Canada kept interest rates on hold last week, saying the economy would shrink in the second quarter because of the wildfires and then rebound later in the year.   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