The recent Reuters poll on the Canadian dollar forecast revealed that the loonie is expected to strengthen less than previously anticipated over the next year. This is due to the possibility of the Bank of Canada cutting interest rates before the Federal Reserve, combined with global trade uncertainty stemming from the U.S. election. The median forecast of 40 foreign exchange analysts in the poll suggested that the Canadian dollar would remain relatively stable at 1.37 per U.S. dollar in three months, with a modest 2.5% improvement to 1.33 in a year.
According to the poll, it is predicted that the Bank of Canada will lower interest rates to 4.75% in response to economic conditions. This decision is expected to precede any rate cuts by the Federal Reserve, causing a widening gap in interest rates between the two countries. Analysts foresee the possibility of three interest rate cuts by the Bank of Canada this year, compared to the Fed’s more conservative estimated cuts. This interest rate differential could exert downward pressure on the Canadian dollar in the short term.
The upcoming U.S. election in November is identified as a potential risk factor for the Canadian dollar’s outlook. Analysts point out that if the election results in increased tariffs and trade barriers, it could negatively impact Canada’s export-dependent economy. With around 75% of Canadian exports destined for the United States, any disruptions in global trade could have adverse effects on the Canadian dollar’s value. This added layer of uncertainty further complicates the forecast for the loonie.
The Canadian dollar’s forecast is subject to multiple economic factors that could influence its trajectory in the coming months. The possibility of interest rate cuts by the Bank of Canada, the timing of rate adjustments relative to the Federal Reserve, and the outcome of the U.S. election all contribute to the uncertainty surrounding the loonie’s performance. Analysts advise caution when projecting the Canadian dollar’s future value, as these variables present a complex and interconnected web of influences that could impact its strength in the global currency market.