by Fergal Smith
TORONTO (Reuters) – Analysts have cut their bullish near-term forecasts for the Canadian dollar as China’s economy weakens and the gap between U.S. and Canadian bond yields widens, but still expect the currency to rebound in a year. stronger, a Reuters poll showed.
An average forecast of about 40 forex analysts was that the loonie would strengthen 1.9% in three months to 1.34 per US dollar, or 74.63 US cents, compared with the previous month’s forecast of 1.32.
It was then expected to grow to 1.29 in a year, with the August forecast and a gain of 5.8%.
“The loonie has lost a few feathers in recent weeks,” said Stephen Marion, chief economist and strategist at the National Bank of Canada.
“The widening interest rate differential with the US and low commodity prices on the back of a slowing Chinese economy are keeping the CAD under control.”
China’s economic growth is slowing as policymakers try to correct property market slumps. Canada is a major producer of commodities, so the loonie is sensitive to the global growth outlook.
The currency has weakened about 4% from its July peak, while the Canadian 2-year yield has also slipped below its US counterpart in recent weeks.
On Wednesday, the gap in favor of the US note was 36.5 basis points, its largest since May 3, as the Bank of Canada left its key interest rate at 5%, a 22-year high, noting that the economy had entered. period of weak growth.
Canada’s economy unexpectedly shrank at an annual rate of 0.2% in the second quarter, and growth most likely stabilized in July, data showed on Friday.
Canadian employment data for August due out on Friday could provide further clues about the strength of household activity.
High borrowing costs are a major concern for Canadians because they borrowed heavily during the pandemic to participate in a hot housing market, and especially because of shorter mortgage cycles.
Almost all Canadian mortgages have terms of five years or less, while 30-year terms are common in the US.
“We believe that market expectations of no rate cut by the Bank of Canada next year could be a surprise,” Marion said.
(For other stories from the September Reuters forex survey:)
(Reporting by Fergal Smith; Polling by Sujit Pai, Devyani Sathyan and Pranoy Krishna; Editing by Jan Harvey)