By Fergal Smith
TORONTO (Reuters) -The Canadian dollar is set to strengthen over the coming year as the Bank of Canada potentially cuts interest rates just two more times in the current easing campaign and expected rate cuts from the U.S. Federal Reserve help stimulate Canada’s economy, a Reuters poll found.
The median forecast of 32 foreign exchange analysts in the August 29-September 3 poll predicted the loonie would strengthen 1.4% to 1.36 per U.S. dollar, or 73.53 U.S. cents, in three months, compared with the 1.37 level expected in a survey last month.
In 12 months, the currency was forecast to gain 2.8% to 1.3415, versus 1.35 seen previously.
Investors expect the BoC to resume its easing campaign at a policy decision on September 17 and are pricing in roughly 40 basis points of easing in total by the end of 2026. The central bank has left its benchmark rate on hold at 2.75% since March, having eased by a cumulative 225 basis points since June 2024.
“The BoC is close to done with cutting rates, while the Fed is yet to start in earnest, and we suspect the FOMC is likely to surprise markets with the quantum of rates cuts that they ultimately deliver,” said Nick Rees, senior FX market analyst at Monex Europe Ltd.
“Combine this with positive spillovers to Canadian growth, and we see plenty of scope for the loonie to make gains against the greenback in the coming 12 months.”
Canada sends about 75% of its exports to the United States, including oil and autos. The U.S. has imposed a 35% tariff on goods from Canada but the vast majority of products are exempt from duties under a continental trade pact.
Fiscal spending on defense and other items could also boost Canada’s economy, say analysts.
Canada has been dealing with economic uncertainty since the start of the year, so the primary focus of the federal budget, due to be presented in October, will be to cut operational spending and funnel investments into major projects, Prime Minister Mark Carney said on Wednesday.
(Other stories from the Reuters September foreign exchange poll)
(Reporting by Fergal Smith; Polling by Shaloo Shrivastava and Jaiganesh Mahesh; Editing by Hugh Lawson)
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