Weak economy to drag Canadian dollar lower over next 12 months

Thu Apr 9, 2015 11:29am EDT
 
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By Deepti Govind

(Reuters) - The Canadian dollar will not gain back any ground against its U.S. counterpart in the coming year as the resource-dependent economy feels the pinch of low crude oil and commodity prices, a Reuters poll found.

Canada is the world's fifth largest producer of oil and a steep slump in its price since June last year has led to falling revenues at energy firms and pushed the currency down 10 percent in 2014. It has lost another 8 percent so far this year.

The survey of 45 foreign exchange strategists predicted the Canadian dollar will trade at C$1.26 in a month and C$1.28 by end-June. It was trading at $1.252 on Thursday.

Analysts expect the currency, known as the loonie, to hold close to C$1.27-C$1.28 between six months to a year.

"The impact from lower oil prices is going to be more pronounced and a bit more sustained in the market than the Bank of Canada seems to think at this point," said Robert Lynch, currency strategist at HSBC.

While a lid on oil prices - U.S crude CLc1 is predicted to average $53.6 a barrel in 2015 - will pressure the loonie down, divergent monetary policy between Canada and the U.S. is also cited as a major reason for the currency's weakness.

The U.S. Federal Reserve is expected to hike interest rates this year. The latest consensus is for a move in September, while the Bank of Canada is predicted to hold rates.

Strategists said the spotlight is now firmly on Canada's economic slowdown, a lingering fallout of the over 60 percent drop in crude prices between June 2014 and this January that has led to job cuts at energy firms.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto in this January 23, 2015, file photo. REUTERS/Mark Blinch/Files