Canadian dollar will strengthen later this year-Analysts
2023.02.08 12:48
Canadian dollar will strengthen later this year-Analysts
By Ray Johnson
Budrigannews.com – Investors are betting that central banks will cut interest rates in 2024, which means that the Canadian dollar will rise later this year as the global economic outlook improves for commodity-linked currencies.
However, the median forecast from currency analysts predicts that in three months, the will be little changed at 1.34 per US dollar, or 74.63 cents, which is slightly higher than January’s forecast of 1.35.
The loonie was predicted to rise to 1.30 in a year, a gain of just over 3% from the January poll’s forecast but a steady increase.
According to market analyst Jay Zhao-Murray of Monex Canada Inc., “China is one of the big fundamental drivers for why there is growing optimism… With that demand coming back, it’s going to be supportive of the global economy and it could be a boost to pro-cyclical currencies.” The rapid reopening of the world’s No. 2 economy is likely to drive demand for Canadian-produced goods, which could help prevent a recession if it doesn’t also push up inflation and cause more interest rate increases.
The broader monthly Reuters foreign exchange poll indicates that the reopening of China is expected to benefit emerging market currencies as well as commodity-linked currencies like the Australian dollar.
Last month, the Bank of Canada became the first major central bank to stop tightening its monetary policy, stating that it would take time to determine how effectively rate increases are lowering inflation.
According to Zhao-Murray, “Central banks are starting to pause, and I think that is going to create a bit more of an environment that is going to be supportive for cyclical currencies like the loonie, especially in the second half of the year.”
Although they are not finished raising rates, the Bank of England, the European Central Bank, and the U.S. Federal Reserve have also laid the groundwork for a pause.
Money markets are betting that the Fed and the BoC will shift to cutting rates by the end of the year and then ease more strongly in 2024, with the end of tightening in sight.
According to Mazen Issa, senior FX strategist at TD Securities in New York, the possibility of “an eventual reflationary dynamic” is likely to benefit stocks later this year.
“That should also assist in supporting currencies other than dollars, such as the Canadian dollar.”
Equity markets typically have a strong positive correlation with the loonie.
