By Fergal Smith
TORONTO, March 6 (Reuters) – The Canadian dollar will strengthen over the next year if the Federal Reserve moves to cut interest rates as expected and the U.S. economy slows without slipping into recession, a Reuters poll found.
In the March 1-6 poll of 40 currency analysts the median forecast was for the loo CAD= strengthening 1.4% to 1.34 per US dollar, or 74.63 US cents, in three months, matching the forecast in the February survey.
It was then predicted to advance to 1.30 in a year, also matching the forecast of the previous month. The expected strengthening comes as some analysts anticipate broad declines for the US dollar .DXY.
“The gradual decline in USD-CAD certainly partly reflects a slowing US economy and the Fed embarking on a rate-cutting cycle,” said Derek Halpenny, head of research, global markets EMEA and international securities at MUFG.
“We also assume no hard landing (for the economy) and if risk remains broadly favorable this year, that should also benefit CAD.”
Canada is a major exporter of commodities, including oil, so the loonie tends to be sensitive to swings in investment sentiment.
However, about 75% of Canada’s exports go to the United States, so slower U.S. growth may not be a recipe for Canadian dollar strength against the Group of Ten currencies other than the greenback, analysts say.
“A slowing economy in the US and a weakening US dollar tend to result in CAD underperforming against other G10 currencies,” Halpenny said.
The Bank of Canada is also expected to begin a rate-cutting campaign this year as the economy slows and inflation cools.
Analysts expect the Canadian central bank to leave its reference interest rate at a 22-year high of 5% on Wednesday and at the next policy decision in April but then start cutting in June, recent. Reuters poll showed
(Reporting by Fergal Smith; Polling by Sujith Pai, Pranoy Krishna and Veronica Khongwir; Editing by Kim Coghill)
((fergal.smith@thomsonreuters.com; +1 647 480 7446;))
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