November 5, 2014 / 3:43 PM / 3 years ago

Reuters poll: Low oil prices, U.S. Fed rate policy to weaken Canadian dollar

BANGALORE (Reuters) - Falling crude oil prices will probably take the Canadian dollar to a five-year low over the coming year, according to strategists in a Reuters poll, who also expect a tighter policy from the U.S. Federal Reserve to heavily weigh on the currency.

The new Canadian five and 10 dollar bills, made of polymer, are displayed with the previously released 20, 50 and 100 dollar notes following an unveiling ceremony at the Bank of Canada in Ottawa April 30, 2013. REUTERS/Chris Wattie

The Canadian dollar, steered by commodity exports, has weakened about 7 percent against the greenback this year due to falling commodity prices. The price of a barrel of Brent crude oil lost a fifth of its value in just over a month to $76.86, followed by a sharp fall in asset prices globally.

The poll of 45 currency strategists taken this week forecast the Canadian currency would fall nearly 2 percent to C$1.15 per U.S. dollar over the next 12 months, marking its lowest level since July 2009 and surpassing its 2014 low of C$1.1385.

Those predictions were in line with the consensus for other major currencies, which showed that despite high volatility in financial markets, the U.S. dollar would rise against most currencies on expected tighter monetary policy and better economic growth. [EUR/POLL] [GBP/POLL]

After having recently drawn the curtains on its stimulus program, the Fed is expected to raise rates in the second quarter of 2015, three months ahead of the Bank of Canada.

The currency is likely to trade at C$1.13 to a U.S. dollar in a month, higher than the five-year low of C$1.1466 it hit on Wednesday, before weakening again over the coming year.

“Now that quantitative easing has ended and the Fed is expected to raise rates ahead of the Bank of Canada, it will lead to a more supportive environment for the dollar going forward,” said BTMU currency analyst Lee Hardman.

A separate Reuters poll of commodity analysts conducted last month showed Brent crude was likely to stay below $100 a barrel for the next two years, averaging $93.70 in 2015 and $96.00 in 2016.

Despite better global economic growth, weak demand and oversupply will probably keep a lid on oil prices, hurting the outlook for the loonie.

“Investor concerns are continuing to build over a potential supply glut in the oil market, and given that Canada is a net exporter of petroleum products, the ongoing decline in the prices of crude oil will lead to further deterioration in Canada’s balance of trade,” said Hardman.

The Canadian currency is unlikely to get any support from the Bank of Canada in the near future, though.

Concerns over low inflation, weaker-than-expected exports and subpar business investment growth will probably keep the central bank from raising interest rates until the second half of next year. [CA/POLL]

That will act in the greenback’s favor. The U.S. dollar has rallied nearly 9 percent this year against major currencies and is expected to strengthen further as the U.S. economy, Canada’s biggest export market, picks up steam.

For other stories from the poll, see

Polling by Sarbani Haldar and Kailash Bathija; Editing by Lisa Von Ahn

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