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In the coming year, the Canadian dollar is predicted to rise as an anticipated downturn in economic activity stops short of a harsh landing for the economy, according to a Reuters poll released on Wednesday.
Since the beginning of March, the Canadian dollar has gained around 3% against the US dollar as concerns that the global banking crisis might cause a credit constraint to subsided and the US dollar has declined against a basket of key currencies.
One of Canada’s main exports, oil, saw a spike in price this week, which has given the currency even more traction. On Tuesday, it reached a level near 1.34 per US dollar, or 74.63 US cents, which was its highest intraday level in almost seven weeks.
In comparison to the 1.34 forecast in last month’s projection, the median forecast of over 50 currency analysts predicted that the loonie would decline to 1.35 per U.S. dollar in three months. Nonetheless, it was anticipated to increase by 3.5% to 1.30 in a year.
According to Mazen Issa, senior FX analyst at TD Securities, “it’s simply a reflection that you get the slowing in (economic) growth, more of a gentle landing than a harsh landing, and the CAD may do good in that context.”
So, if lending standards tighten dramatically and the U.S. (outlook) becomes extremely bleak, we may face slightly more worldwide issues.
According to Deputy Governor Toni Gravelle, the Bank of Canada is not even close to being concerned about the health of the financial system right now, but it is prepared to intervene and provide support if the banking sector is put under significant strain.
The central bank will decide on the interest rate next Wednesday and will also revise its economic projections. The benchmark interest rate is currently at a 15-year high of 4.50%, and money markets and economists anticipate no change after the BoC halted its rate hike program last month.
The U.S. Federal Reserve and other central banks might soon pause as well.
Issa added, “I think it’s a situation where the (U.S.) dollar loses a little bit of its edge. On the rate differential side, it will lose some ground.
On Tuesday, the difference between the U.S. and Canadian two-year yields was trading at just 27 basis points in favour of the American bond, the smallest difference since early January.
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