Canadian dollar strengthens as BoC conducts rate hike: poll


The Canadian dollar will appreciate next year as high commodity prices boost Canada’s economic outlook and the Bank of Canada is likely to continue with aggressive interest rate hikes, a Reuters poll showed.

The loonie is the only G10 coin to catch up with the US dollar, a magnet for safe-haven flows, in 2022.

The median forecast in the poll is for the Canadian currency to rise 0.4% to 1.26 per US dollar, or 79.37 US cents, over a three-month period, compared with 1.2568 in the forecast. last month. After that, it is predicted to increase to 1.23 in a year.

“I think there are pretty solid reason(s) to build CAD over the medium term,” said Shaun Osborne, chief currency strategist at Scotiabank.

“The (Canada) Bank is taking a very proactive approach to policymaking… Monetary policy is likely to move a little bit faster and possibly a little bit stronger than the Fed (the Bureau) does.” US Federal Reserve) for the next six months.”

The BoC opened the door for a more aggressive pace of tightening on Wednesday, saying it was prepared to act “more aggressively” if needed to tame inflation, even if it has been ahead with rate hikes. for the second consecutive half-pointer in history, bringing its benchmark rate to 1.50%.

Money markets expect the policy rate to hit 3% in December.

Some analysts expect the Canadian economy to be particularly sensitive to higher interest rates after Canadians took on loan sharks during the pandemic to tap into the red-hot housing market.

A Reuters poll of real estate professionals shows the housing boom is expected to end next year.

However, Canada’s gross domestic product increased at an annualized rate of 3.1% in the first quarter, driven by strong domestic demand. That benefits a contraction in the United States.

“The (Canada) economy itself is doing very well,” Osborne said. “I think from an item, terms of trade, point of view, there’s a good news story there to tell for Canada.”

The terms of trade are the ratio between the export price and the import price. An improvement makes a country richer.

The price of oil, one of Canada’s main exports, has risen more than 50% since the start of the year as Western sanctions on Russia have disrupted supplies.

(Reporting by Fergal Smith; poll by Susobhan Sarkar and Swathi Nair in Bengaluru; editing by Jan Harvey)

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