A new Reuters survey shows a higher prediction for the Canadian dollar because experts anticipate a hike in interest rates by the Bank of Canada (BoC). They also expressed optimism that the federal reserve and the high COVID-19 vaccination rates will improve the economy.
Analysts Expect Hiked Interest Rates
More than 50% of the over 30 analysts surveyed by Reuters between August 2 and 4, 2021, predict a 2.5% increment for the Canadian dollar within 12 weeks to 1.2255 for each US dollar or 81.72 US cents. Also known as the Loonie, the Canadian dollar is predicted to surge by 1.21 points in the next 12 months compared to the 1.22 points indicated in last month’s poll.
The head of foreign exchange (forex) at New York-based BMO capital markets, Greg Anderson, opined that “we expect the Loonie to increase slightly by next year.” “Around this period next year, the BoC should start preparing markets for the first increase in interest rates, and the fed reserve should follow not long after,” he concluded.
Last month, Canada’s apex bank reduced its weekly net purchases of the federal government bonds by C$1B (C$3B in June but C$2B in July 2021). It also maintained its stance that there would still likely be an interest rate increase for the first time come Q3/Q4 2022.
Positive Outlook For The Loonie
Asides from the British pounds, the Canadian dollar surged higher than other G10 currencies; it has surged by over 1.6% so far this year. Two months ago, the Loonie reached a new 6-year peak of around 1.25.
Anderson further revealed that “Loonie’s positive outlook can be related to the progress in Canada’s current account balance.” When Canada released its first-quarter report for this year at the beginning of the year, it showed that it is the first time the account will be positive for over a decade. One reason for the surplus would be the rise in the price of top exports, such as oil.
Oil rose to almost $78 a barrel last month – a price it hasn’t reached in seven years. However, it has declined from that value because of decreasing demand. The market is dull because of the rise in cases of a new wave of COVID-19, which is rapidly spreading across the united states and other top economies.
Better Growth Rates Than The US
Even though the variant has also been detected in Canada, it might be widespread to the extent of causing total lockdowns because of high vaccination rates. A Reuters poll suggests that 61% of Canadians are completely inoculated, and almost 73% have received a minimum of one vaccination dose.
Wells Fargo’s currency analyst, Erik Nelson, opined that “Canada has given the highest number of vaccination doses.” Hence, he forecasted that Canada has a better growth prospect than the United States, which would reflect on a strengthened Canadian dollar. Various data metrics show that the curve for the Canadian government bond yields and the US treasuries are trending almost close to each other.
