Canada's dollar is forecast to strengthen over the coming year, bolstered by higher oil prices and reduced stimulus from the Bank of Canada, but gains could stop short of the currency's recent six-year high, a new poll shows.
The loonie has declined 3.2% since June when it reached its strongest level since May 2015 near $1.20 per U.S. dollar, or 83.33 U.S. cents, pressured by the Federal Reserve's surprise shift to more hawkish guidance and worries about the Delta variant of the COVID-19 virus.
The median forecast of more than 40 economists and strategists polled by the Reuters news agency is for the Canadian dollar to strengthen 2.5% in the coming six months to $1.21. The Canadian currency is then expected to pull back to 1.22 within one year.
A risk to the loonie's outlook is a potential reassessment by markets of the order in which central banks begin lifting interest rates from record lows.
Canada is a major exporter of commodities, including oil, so the loonie is particularly sensitive to the global economic outlook. Oil on Monday reached its highest level since October 2018, breaking above $77 U.S. a barrel while some analysts expect the Bank of Canada to cut the pace of bond purchases again at its next policy decision on July 14.
In April, Canada became the first country in the Group of Seven (G7) to reduce its pandemic support. Tapering could support the loonie, but the Bank of Canada likely does not want the currency to reach a level that reduces the competitiveness of Canada's exports.
Currently, money markets see the Bank of Canada moving ahead of the U.S. Federal Reserve on interest rates, with a hike forecast by the middle of 2022.
