The Canadian dollar is expected to recover only a small portion of its recent losses in the coming year as expected U.S. tariffs cloud the economic outlook, offsetting investor optimism about a likely change in government, according to a Reuters poll.
The median forecast of 37 currency analysts surveyed Jan. 3-8 calls for the loonie to rise 0.5 percent to $1.43, or 69.93 U.S. cents, in three months from the level of 1. 4034 predicted in a survey carried out last month.
In one year, the currency is expected to be up 3% to 1.3950, up from 1.4020 previously.
The currency fell 7.9% in 2024, its biggest annual decline since 2015, as Canadian bond yields fell below their U.S. counterparts at a rate not seen in more than two decades.
US President-elect Donald Trump has suggested he could use “economic force” to make Canada the 51st US state, following a threat to impose 25 per cent tariffs. on imports from this country. Canada sends about 75% of its exports to the United States, including oil and cars.
“We assume Trump will hit Canada with tariffs this year, which should weigh on the loonie,” said Stephen Brown, deputy chief economist for North America at Capital Economics. “I fear that the risks to our forecasts are still to the downside.
The Bank of Canada has cut its benchmark interest rate by 1.75 percentage points since June to support the Canadian economy, lowering borrowing costs to 3.25%, and said the possibility of tariffs represented a major new uncertainty.
Canadian Prime Minister Justin Trudeau announced Monday that he would leave office in the coming months, yielding to pressure from parliamentarians alarmed by the unpopularity of his Liberal Party.
The next election is due to take place by October 20 and polls predict a landslide victory for the official opposition Conservatives, which analysts see as a positive result for the loonie.
The Canadian dollar could strengthen in the second half of 2025 as lower borrowing costs begin to support the domestic economy, tariffs are clearer and investors welcome the expected change in government, George Davis said , chief technical strategist at RBC Capital Markets.
The policy initiatives point to “potential tax cuts, a more business-friendly environment and greater tolerance for fossil fuels,” Davis said.
(Other articles from the Reuters January foreign exchange poll)
