The Canadian dollar will appreciate if the BoC’s initial fee rate increases Reuters poll | Investment News

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TORONTO (Reuters) – REUTERS POLL-THE CANADIAN DOLLAR WILL STRENGTHEN SLIGHTLY TO US$1.25 IN THREE MONTHS, MATCHING MARCH FORECAST

REUTERS POLL – THE CANADIAN DOLLAR SEEN UP 2% TO 1.23/USD IN ONE YEAR

The Canadian dollar will strengthen over the coming year as the Bank of Canada potentially raises interest rates aggressively, but gains could be capped by the economy’s dependence on the housing market, according to a Reuters poll.

The poll’s median forecast for the Canadian dollar would rise 0.4% to 1.25 to the US dollar, or 80 US cents, in three months, matching last month’s forecast. It was then expected to climb to 1.23 within a year.

Should tensions between Russia and Ukraine ease over the next few months, “there will be both a reason for a bit more risky trade, which would be good for the Canadian dollar, but also help the Bank of Canada, to the extent that it accelerates rate hikes,” said Royce Mendes, director and head of macro strategy at Desjardins.

Canada’s central bank is expected to raise its overnight interest rate by half a percentage point at its next policy meeting on April 13, according to a majority of economists polled by Reuters, who also raised their rates sharply. inflation forecast for this year. [ECILT/CA]

The Bank of Canada hasn’t hiked rates this big since May 2000. Last month, the central bank hiked the quarter-percentage point it usually favors as it hiked for the first time since October 2018.

While the Ukraine crisis stimulates demand for the safe haven US dollar, the loonie has not benefited as much as it normally does from the surge in oil prices. But that could change.

“I think there is still room for a boost as investors assimilate some of the positive impact these higher commodity prices are having on the Canadian economy,” said Stephen Brown, Senior Economist for Canada at Capital Economics.

Canada is a major producer of energy products, which helped push exports to a record high in February. Economists predict more export gains ahead.

But another key part of the economy, the housing market, has started to lose momentum.

This could be a harbinger that there are limits to how high the Bank of Canada will be willing to raise rates in the current tightening cycle, at least relative to the Federal Reserve.

“The recovery in Canada has been so much more dependent (than in the United States) on residential investment and house prices in general and obviously these are more sensitive to interest rate increases,” he said. Brown said.

(For more stories from the Reuters April Currency Survey:)

(Reporting by Fergal Smith, polling by Anant Chandak and Indradip Ghosh in Bengaluru; editing by Kim Coghill)

Copyright 2022 Thomson Reuters.

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