Canadian dollar expected to strengthen in 2025 as rate cuts boost economy: Reuters poll By Reuters

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar is expected to continue its recovery against its U.S. counterpart next year as lower borrowing costs support economic growth in Canada and investors’ appetite for risk increases, a Reuters poll showed.

The Canadian currency has risen 3.3% since reaching a two-year low of 1.3946 per US dollar, or 71.71 US cents, in August.

Average forecast of nearly 40 FX analysts for the September 30-October period. A second survey showed the Canadian dollar consolidating those three-month gains, falling 0.1% to 1.3514, but remaining stronger than the 1.3650 expected in the September poll.

Within a year, the coin was expected to rise 1.7% to 1.3275, compared to 1.3333 seen previously.

The Bank of Canada is expected to continue cutting its benchmark interest rate over the coming months after cutting it by 75 basis points since June to 4.25%, while the US Federal Reserve began its own easing campaign in September.

The Canadian economy is particularly sensitive to interest rates. Its mortgage cycle is shorter than some other major economies, while household debt as a share of net disposable income, at 184% in 2023, is the highest ever in the G7, according to OECD data.

“Domestic interest rate cuts will begin to significantly stimulate the domestic economy, while Fed easing should serve as a boost to overall risk conditions, all of which provides a constructive backdrop for the loonie in the new year,” said Nick Rees, chief foreign exchange markets strategist. . Analyst at Monex Europe.

Canada is a major producer of commodities, including oil, so its currency tends to be sensitive to shifts in investor sentiment. One potential trigger is the outcome of the US election in November.

“We’re looking at a modestly stronger Canadian dollar in 2025 as the U.S. dollar gives up some of what it gained by being a carry taker,” Avery Shenfeld and Katherine Judge, economists at CIBC Capital Markets, said of the interest income investors earn by buying the U.S. currency. And sell low-yielding currencies.

“US fiscal and trade policies could change this view after the US elections,” the economists added in a note.

“But at this point, there is too much uncertainty about who will take over the White House, or the makeup of Congress, or which presidential campaign pledges will actually see the light of day, for that to be taken into consideration to any significant degree.”

(Other stories from Reuters October foreign exchange rate survey)