Loonie seen easing on Europe, growth fears: Reuters poll

Wed Dec 7, 2011 1:50pm EST
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By Claire Sibonney

TORONTO (Reuters) - Canada's currency is expected to soften against the U.S. dollar over the next several months before recovering to current levels and rallying through parity in one year from now, a Reuters poll showed on Wednesday.

A survey of 48 global foreign exchange strategists released on Wednesday was slightly more pessimistic on the Canadian currency than a similar poll a month ago, with global growth slowing and many expecting the euro zone debt crisis to get worse before it gets better.

Median forecasts in the poll showed the currency at C$1.02 to the U.S. dollar, or 98.04 U.S. cents, one month from now, C$1.03, or 97.09 U.S. cents, in three months, and C$1.01, or 99.01 U.S. cents, in six months.

The currency traded near C$1.01 to the U.S. dollar on Wednesday.

The latest negative shock to markets came this week when rating agency Standard & Poor's threatened to cut the credit rating of the euro zone's financial rescue fund as European leaders raced to find a political solution to their sovereign debt crisis.

"There is a pretty clear out for the Europeans here and they seem to be heading towards it. But we're just worried that although we kind of think that fiscal union is the only way out of this on a sustainable basis, we're not quite sure if the politics can really move quickly enough to avoid a disorderly market event," said Shaun Osborne, chief currency strategist at TD Securities.

"But even with progress, slow growth, quantitative easing, aggressive reductions in (European Central Bank) interest rates, at least through the early part of next year, it suggests that the euro should go lower. And that's going to help the (U.S.) dollar rise modestly."

With prospects for the European and global economies weakening, higher-risk currencies more sensitive to global growth - like Canada's - would tend to underperform, he added.   Continued...

<p>A man holds the new Canadian 100 dollar bill made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch</p>