July 5, 2016 / 2:37 PM / in a year

Canadian dollar to weaken on Brexit and cheap oil: Reuters poll

BENGALURU(Reuters) - The Canadian dollar will weaken over the coming months as Britain’s vote to leave the European Union strengthens the U.S. dollar and with oil prices set to remain weak despite recent supply outages, a Reuters poll found.

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

The currency, nicknamed the loonie, has fallen 0.7 percent since Britain’s decision to exit the EU on June 23 and is down 3 percent since May 3 when it hit an 11-month high of C$1.2458.

The poll of nearly 50 currency strategists showed the currency will weaken further to C$1.300 per U.S. dollar in a month, down 1.2 percent from Monday’s close of C$1.2843, but not as much as was predicted last month.

The U.S. dollar will benefit from uncertainties surrounding Britain’s vote to leave the European Union, said Krishen Rangasamy, senior economist at National Bank of Canada.

The loonie, which compared with other major G20 currencies has remained relatively unscathed from the fallout of Brexit, could weaken to C$1.320 in three months, versus C$1.305 expected in the June poll, before recovering back to C$1.300 in a year.

“We have not seen much of that in the first week after Brexit but we expect that to happen going forward until the end of the third quarter,” Rangasamy added.

Over the past several months, the Canadian dollar has been under pressure from sluggish domestic economic growth and signs the Federal Reserve will hike U.S. interest rates this year.

But after raising rates for the first time in nearly a decade in December, markets are betting on no change in rates at all this year, according to data from the CME Group’s website.

Still, the dollar is expected to gain over the coming year on safe-haven flows despite fading chances the Fed tightens policy in the coming months. [EUR/POLL]

“It is not so much a downfall of the Canadian dollar that we see going forward, it really is a strengthening in the U.S. dollar,” said Andrew Grantham, senior economist at CIBC.

The Bank of Canada is likely to hold policy steady until early 2018 with some economists even expecting a rate cut this year. [CA/POLL]

The Canadian central bank trimmed rates twice last year to cushion the economy from the oil price shock of 2014 and is widely predicted to leave rates unchanged on July 13.

What could affect the loonie further is the price of oil.

Despite rallying sporadically over the past few weeks on global supply disruptions, oil, a major Canadian export, remains well below its highs of the past decade.

A separate Reuters poll found crude prices LCoc1 will average $45.20 per barrel this year, less than half of their value before they crashed. [O/POLL]

“Right now oil prices are showing resilience despite what we have seen with Brexit and that is why the Canadian dollar is where it is, but that is not to say oil prices are going to stay there,” said National Bank of Canada’s Rangasamy.

Global economic uncertainty affecting investment and hiring decisions could significantly hurt Canada’s economic growth and oil prices, leading to further depreciation in the Canadian dollar, he added.

(For other stories from the FX poll: [L4N19Q2R6])

Polling by Sarmista Sen and Vartika Sahu; Editing by Chizu Nomiyama

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