By Fergal Smith
TORONTO (Reuters) – A Reuters poll showed that the Canadian dollar is set to rise less than previously expected over the next year if the Bank of Canada begins cutting interest rates before the Federal Reserve (US central bank) and the US election raises uncertainty. Concerning global trade.
According to the average forecast of 40 foreign exchange analysts in the survey conducted from May 31 to June 4, the rate will change little at 1.37 per US dollar, or 73.17 US cents, in three months, compared with 1.36 in last month's survey.
It was then expected to rise by 2.5% to 1.33 within a year, versus 1.32 previously expected.
The Bank of Canada will cut interest rates to 4.75% later on Wednesday, according to three-quarters of economists in a separate Reuters poll that showed three more cuts this year.
Financial markets expect the Bank of Canada to ease monetary policy this year by 65 basis points, compared to 45 basis points from the Federal Reserve.
“You're a long way away from Fed cuts at this point, while a Bank of Canada is more imminent,” said Benjamin Ritzes, a Canadian interest rates expert and macro strategist at BMO Capital Markets.
“Although some of this spread has been priced in, it will likely go a little further, which will not be positive for the Canadian dollar in the near term.”
A recent poll of analysts showed that the Bank of Canada would be willing to cut interest rates three times before the Fed's first move before the currency's decline threatens to jeopardize inflation expectations.
Analysts say the US election in November could pose additional headwinds for the Canadian dollar if it leads to higher tariffs that dampen the outlook for global trade.
Canada is a major producer of goods and sends about 75% of its exports to the United States.
“This is another reason to be careful about your expectations,” Ritzes said.
(For other stories from the June Reuters foreign exchange poll:)