C seen up in one year as analysts eye more BoC rate hikes, Reuters polls show.
TORONTO Reuters - The Canadian dollar is set to rally over the next 12 months as pressure grows on the Bank of Canada to resume its interest rate hike campaign and some of the appeal of the U.S. dollar potentially fades, a Reuters poll showed on Wednesday.
While the loonie was expected to give back some of its recent gains over the past three months, edging 0.6% lower to 1.3467 per U.S. dollar, or 74.26 U.S. cents, it was then forecast to rally to 1.29 in a year, the median forecast of nearly 40 currency analysts.
A rise of 1.29 per U.S. dollar would be a gain of 3.9%, and matching the forecast in last month's poll.
The main bullish development is the fact that for a while the Bank of Canada has been on pause and now it is looking increasingly likely that it is going to resume hiking rates, said Jared Zhao-Murray, a market analyst at Monex Canada Inc.
Money markets could see a near 50% chance of the Canadian central bank raising its benchmark rate later on Wednesday, leaving it at a 15-year high of 4.50% since January. A hike is fully priced in by the next meeting in July.
It is a surprisingly robust economy here in Canada, Zhao-Murray said. The BoC is counting on a slower economic expansion to raise inflation to its 2% target. Canada's economy grew at an annualized rate of 3.1% in the first quarter, eclipsing the BoC's forecast of 2.3%, and likely accelerated further in April.
Canada's job data for May, which is due on Friday, will give further evidence of the country's economy's relative strength.
The Canadian dollar's outlook for the U.S. dollar is another key contributing factor to how it will perform, as investors bet that the Federal ReserveFederal Reserve will pause its tightening campaign as soon as next week.
We anticipate the Canadian dollar will strengthen modestly over the next year as the U.S. dollar loses a bit of its lustre, said Benjamin Reitzes, Canadian rates macro strategist at BMO Capital Markets.
The Fed, which is expected to boost from hikes later this year and future rate cuts next year, expect to weigh on the greenback and lift the Canadian dollar modestly. The global economy is likely to support the Fed rate cuts if they are accompanied by a shift to Fed rate cuts. The loonie is especially sensitive to the global economic prospects, as Canada is a major exporter of commodities, such as oil.