Strategists are raising their forecasts for the Canadian dollar as commodity prices rise and the domestic economy shows signs of recovery, according to a Reuters poll, with the loonie already gaining in recent months.
After rallying more than 10 per cent since March to close at 1.3264 on the U.S. dollar, or 75.39 US cents, on Wednesday, the loonie is expected to weaken by 1.8 per cent to $1.35 in three months, the poll of more than 40 currency strategists showed.
That's still stronger than the $1.36 forecast in the July poll. The currency is expected to strengthen to $1.32 in one year, compared with the $1.33 foreseen last month.
“We think strengthening commodity prices amid signs global manufacturing is recovering and firm domestic data, which suggest the Canadian economy is recovering quite quickly through midyear, should boost the CAD,” said Shaun Osborne, chief currency strategist at the Bank of Nova Scotia.
As Canada’s economy reopened in recent months and coronavirus infections declined, domestic data showed manufacturing activity expanding and the housing market recovering. Nearly a million jobs were added in June, and data due on Friday may show the economy added more jobs in July.
Ottawa is rolling out more than $300-billion of economic support, about 15 per cent of gross domestic product, and the Bank of Canada has cut interest rates to near zero and begun its first large-scale asset-purchase program. Its balance sheet as a share of GDP has expanded this year by more than some major counterparts, including the U.S. Federal Reserve.
Rising forecasts for the loonie come as the U.S. dollar weakens and commodities rally. Gold rose to a record high of more than $2,000 an ounce this week and oil traded on Wednesday at its highest since early March. Canada is a major producer of commodities.
"We think there is further upside for the loonie ahead given the potential for oil prices to rise further," said Stephen Brown, senior Canada economist at Capital Economics. It sees the loonie at $1.29 in 12 months.
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