By Fergal Smith
TORONTO (Reuters) – Analysts see much less upside potential for the Canadian greenback within the coming yr than beforehand thought, as current information exhibiting a slowdown within the home economic system pushed again the anticipated begin of rate of interest cuts by the Financial institution of Canada, information confirmed a Reuters ballot.
The typical forecast of 35 foreign money analysts surveyed within the Dec. 1-5 ballot was for the Canadian greenback to rise 0.4% in three months to 1.3533 per U.S. greenback, or 73.89 U.S. cents, up from 1 .3450 in a November ballot.
The index was then anticipated to rise to 1.3130 inside a yr, up from 1.3000 in final month’s forecast.
“Our view is that the Canadian greenback is in for a tricky three months forward as information suggests the Canadian economic system is teetering on the point of a recession, if not a light one,” stated Simon Harvey, head of FX evaluation at Monex Europe and Monex Canada.
Canada’s economic system unexpectedly shrank by an annualized 1.1% within the third quarter, avoiding a recession after an upward revision from the earlier quarter however experiencing stagnant development.
Gentle home information “ought to enhance expectations of easing from the BoC, particularly on the Federal Reserve,” Harvey stated. “Earlier easing by the Financial institution of Canada will widen rate of interest differentials in favor of USD/CAD.”
Cash markets anticipate Canada’s central financial institution to go away its benchmark rate of interest unchanged at a 22-year excessive of 5% in a coverage announcement on Wednesday after which begin easing coverage as early as March. In October, no rate of interest cuts for 2024 had but been priced in.
A separate Reuters ballot final week confirmed economists anticipate the BoC to begin reducing charges within the second quarter of subsequent yr and borrowing prices to fall by at the very least one proportion level by the top of subsequent yr.
Canadian 2-year yields have fallen additional under the US equal in current weeks, to a spot of 54 foundation factors, the most important distinction since March.
Decrease returns usually make a foreign money much less engaging to buyers.
(For different tales from the December Reuters foreign money survey:)