TORONTO Reuters - The Canadian dollar will claw back its recent decline over the next year as elevated oil prices bolster Canada's trade surplus and the central bank possibly hikes interest rates as much as the U.S. Federal ReserveFederal Reserve, according to a poll by the Canadian dollar.
The safe-haven dollar has been supported by bets that the Federal ReserveFederal Reserve would raise interest rates aggressively to tame inflation, which has resulted in a surge in inflation.
The Fed hiked by half a percentage point on Wednesday, its biggest single move in 22 years.
The Canadian dollar has fared better than most other G 10 currencies in 2022, shielded by domestic economic strength, including a string of monthly trade surpluses. Data on Wednesday showed Canadian exports rose to a new record high in March.
The trade surplus of Canada should continue to provide good support for the loonie, according to Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.
The more the market accepts that oil north of $100 a barrel is not a spike phenomenon, but rather a longer lasting one, the more we'll see some of those petro-greenbacks converted into Canadian dollars. Canada is a major producer of oil, which has climbed more than 40% this year as Western sanctions on Russia have disrupted supplies.
The Canadian dollar is expected to increase by 1.3% to 1.2568 per US dollar in three months, compared with a forecast of 1.25 in last month's poll. According to the latest poll, it will go up to 1.23 per dollar over the next year.
The Bank of Canada raised interest rates by half a percentage point on April 13. By September, investors are expecting to see several more such moves, lifting the benchmark rate to 2.50%, the middle of the central bank's neutral range.
A neutral interest rate is the level that a central bank believes will neither boost nor restrain economic activity.
Erik Nelson, a currency strategist at Wells Fargo, said the BoC is one of the most hawkish central banks, maybe more so than the Fed.
Nelson said that the Canadian dollar is resilient because of a combination of a hawkish central bank and high oil prices.