The Canadian dollar will strengthen against its US counterpart next year, offsetting the lost ground since July.
The Canadian dollar has fallen about 2% since hitting a nine-month high of $ 1,3016 on July 19 as oil prices plummeted and investors worried more about the trade war between the United States and China.
So its economy could be hurt by an escalation of trade tensions. Canada has a current account deficit and exports many goods, including oil.
Simon Harvey said “At the moment, there’s enough support out there for the loonie to ignite the storm,” FX market analyst for Monex Europe and Monex Canada. “We believe that the current conditions of the country are stable within Canada and support a neutral stance by the Bank of Canada.”
The jobs report in Canada for July is due on Friday.In June, the annual inflation rate matched the Bank of Canada’s target of 2%, while the unemployment rate was 5.5%, a near-record low.
The central bank left its interest rate pending at 1.75% last month and made it clear it did not intend to lower interest rates.
Money markets expect about two 25-point rate cuts by the Bank of Canada by the end of 2020 but that is well below the roughly 100 basis points of relief expected for the same period by the US Federal Reserve.
The poll of nearly 40 currency analysts expects the Canadian dollar to strengthen at 1.31 for the US dollar, or 76.34 US cents, for three months, from about 1,331 on Wednesday. It is then expected to climb further to 1.29 in 12 months, stronger than the 1.30 average forecast in the July poll.
Loonie has gained nearly 3% this year against the US dollar even as green growth has advanced for the second straight year against a basket of major currencies.
Some declines in broader U.S. dollar strength could boost the Canadian dollar next year, said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
Chandler expects the Bank of Canada to cut interest rates in the first quarter of 2020 but that the price of oil, which has fallen more than 12% since July.
“We are looking for a modest move in raising oil prices from here,” Chandler said.forex.com
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