Canadian dollar forecast cut as BoC follows Fed on peak rate bets – Reuters poll

TORONTO, Nov 2 (Reuters) – The Canadian dollar will gain less than previously thought over the coming year as the domestic economy has lost some sensitivity to oil prices and the Bank of Canada may be at risk. lagging the Federal Reserve in rate hikes, according to a Reuters poll.

The currency has weakened more than 7% against the US dollar since the start of 2022. That’s a better performance than any other G10 currency, but almost all of the decline has come since mid- august.

According to the median forecasts of nearly 30 currency analysts from October 28th to November 28th. 1 poll, the Canadian dollar will weaken more than 0.5% to 1.37 per US dollar, or 72.99 US cents, in three months, compared to the October forecast of 1.34.

It was then expected to rise to 1.31 within a year, from 1.30 expected in last month’s poll.

“We believe that in terms of central bank action, the Bank of Canada is going to end up with a lower terminal rate,” said Bipan Rai, head of North America currency strategy at CIBC Capital Markets.

“This implied spread between terminal rates in Canada and the United States will likely need to widen further and that could send the US dollar higher across the board, including against the Canadian dollar.”

The Bank of Canada raised its benchmark interest rate last week by half a percentage point to 3.75%, missing calls for another 75 basis point move, as it forecast the he economy, with its oversized real estate market, would stagnate over the next three quarters.

Investors are betting on a terminal rate, or maximum level of interest rates, of the BoC in the coming months of 4.25%. That’s about three-quarters of a percentage point lower than expected for the Federal Reserve’s terminal rate. .

A possible reduction in global economic uncertainty next year could help the loonie recover some ground, but the price of oil, one of Canada’s main exports, could have less influence on the currency than it does. historically has been, according to analysts.

Oil has climbed more than 18% this year, contrasting with the loonie’s losses, as it jumped 55% in 2021.

“Any volatility in oil prices tends to be transmitted less today to currency volatility than it has in previous periods, as the Canadian economy is less reliant on the oil sector. energy,” said Royce Mendes, head of macro strategy at Desjardins.

“We see less incentive to reinvest money back into the ground in the oil field when oil prices are high and therefore there is less room (for currency) to fall when oil prices are low. “

(For more stories from the November Reuters Forex Poll:)

Reporting by Fergal Smith; Poll by Sujith Pai and Prerana Bhat; Editing by Bernadette Baum

Our standards: The Thomson Reuters Trust Principles.

Carol N. Valencia