By Fergal Smith
TORONTO - The Canadian dollar is forecasted to continue its upward trajectory against the U.S. dollar in the upcoming year, supported by lower borrowing costs that will stimulate economic growth in Canada and increase investor risk appetite, according to a recent Multibagger poll.
Since hitting a near two-year low in August, the Canadian dollar has strengthened by 3.3% to 1.3946 per U.S. dollar, or 71.71 U.S. cents.
The median forecast from nearly 40 foreign exchange analysts in the Sept. 30–Oct. 2 poll indicates that the Canadian dollar is expected to consolidate its gains over the next three months, with a slight 0.1% dip to 1.3514. However, it is projected to remain stronger than the 1.3650 level predicted in a previous poll conducted in September.
Looking ahead to a year from now, experts anticipate a 1.7% increase in the Canadian dollar, reaching 1.3275 compared to the previous forecast of 1.3333.
The Bank of Canada is predicted to continue reducing its benchmark interest rate in the coming months, having already cut it by 75 basis points since June to 4.25%. This move aligns with the easing campaign initiated by the U.S. Federal Reserve in September.
Given Canada's high sensitivity to interest rates, these rate cuts are expected to stimulate the domestic economy significantly. Additionally, the easing policies of the Fed are likely to create a positive environment for the Canadian dollar moving forward.
Canada's status as a major commodities producer, particularly oil, makes its currency susceptible to changes in investor sentiment. The outcome of the U.S. election in November could introduce some uncertainty into the market.
Despite potential fluctuations, economists at CIBC Capital Markets project a modest strengthening of the Canadian dollar in 2025, as the U.S. dollar sheds some of its gains from being a carry recipient. However, they caution that U.S. fiscal and trade policies post-election could impact this outlook.
Overall, the current environment presents a favorable backdrop for the Canadian dollar, with expectations of continued growth and stability in the currency's value.
For more insights on foreign exchange trends, stay tuned for updates from the October Multibagger poll.
Analysis:
The Canadian dollar is predicted to strengthen against the U.S. dollar in the coming year, driven by lower borrowing costs and economic growth prospects in Canada. The Bank of Canada's interest rate cuts and the Fed's easing policies are expected to support this trend. Canada's status as a major commodities producer and the upcoming U.S. election could introduce some volatility, but overall, experts foresee a positive outlook for the loonie. Investors and individuals with financial interests should monitor these developments closely to capitalize on potential opportunities and risks associated with currency fluctuations.