Poll: Canadian dollar to hold its ground as economy rebounds

Thu Sep 1, 2016 9:57am EDT
 
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By Anu Bararia

(Reuters) - The Canadian dollar is set to broadly hold its ground on expectations of an economic bounce-back in the current quarter, while being restrained by the prospect of higher U.S. interest rates and a shaky outlook for crude oil, a Reuters poll found.

Canada's economy shrank in the second quarter at its fastest pace in seven years on poor exports, including a disruption in oil production, a key export, caused by wildfires in northern Alberta. The dollar recently hit a three-week low of C$1.3134.

Growth was, however, upbeat in June alone and supported economists' predictions of a rebound by the end of this month driven by a stronger U.S. economy, accommodative monetary policy, and the government's fiscal stimulus plans.

On the whole, the Canadian dollar is not expected to do much over the forecast horizon.

The loonie is forecast to rise to C$1.301 in a month, up 0.7 percent from Wednesday's close of C$1.3104, the poll of over 50 foreign exchange strategists showed. The median is an upgrade from C$1.313 expected in August's poll.

It is then expected to weaken to C$1.310 in three months versus C$1.320 estimated a month ago, before rising to C$1.300 in a year. The three-month forecast range, from a 7 percent to a gain of 4 percent, hasn't changed much from the last month.

"There is a risk between now and then that we see the U.S. dollar do a little bit better ... and even overshoot our forecast, particularly if the Fed does get into a lift-off mode this year," said Shaun Osborne, chief FX strategist at Scotiabank.

"The rate differential has become more relevant over the last two-to-three weeks."   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