The Canadian dollar is expected to recover against its U.S. counterpart over the coming year as lower borrowing costs boost the domestic economy, but the outcome of the U.S. presidential election could disrupt that outlook, according to a Reuters poll.
The loonie will strengthen 2.4% to 1.36 per U.S. dollar, or 73.53 U.S. cents, by the end, according to the median forecast of 40 currency analysts surveyed between Oct. 28 and Nov. 1. January, compared to 1.3514 predicted in last month's poll.
In one year, the currency is expected to rise by 5.5% to reach 1.32, compared to 1.3275 previously.
“Our forecast for a stronger Canadian dollar is based on the fact that the Fed is expected to catch up on its interest rate reduction cycle and that the Canadian economy is expected to recover quite strongly when the Bank of Canada cuts its rate,” said Kyle Chapman, a foreign exchange analyst at Ballinger Group in London.
On Tuesday, Bank of Canada Governor Tiff Macklem said the central bank was starting to see the impact of its easing on the economy. The Bank of Canada has reduced its benchmark interest rate by a point and a quarter of a percentage since the beginning of June, to 3.75%.
The Canadian economy is particularly sensitive to interest rate levels due to a short mortgage cycle and high household debt. According to OECD data, household debt, which represented 184% of net disposable income in 2023, was by far the highest among G7 countries.
The Canadian dollar weakened about 3% in October, its biggest monthly decline since September 2022. On Thursday, it touched a nearly three-month low at 1.3945.
The outcome of Tuesday's US presidential election constitutes a potential wild card for the currency. Republican candidate Donald Trump has proposed imposing sizable tariffs on imported products. Canada exports approximately 75% of its products to the United States.
“The election is a fork in the road… If we have a Trump presidency, the recovery may not be as strong as we currently anticipate,” Mr. Chapman said.
(Other articles from the Reuters November foreign exchange poll)
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