Canadian Dollar Outlook

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar is expected to give back some recent gains over the coming months but may rise again in 2025 if central bank easing cycles revive the global economy, according to a Reuters poll.

Since hitting a near two-year low at 1.3946 per U.S. dollar (71.71 U.S. cents) in August, the loonie has rallied 3.3%, aided by short covering and broader declines in the U.S. dollar.

The median forecast from over 30 foreign exchange analysts in the Aug. 30-Sept. 4 poll predicts the loonie to weaken approximately 1% to 1.365 in three months, compared to the 1.380 expected in August.

In a year, the currency is forecasted to advance 1.3% to 1.3333, slightly lower than the previous prediction of 1.3350.

Jimmy Jean, chief economist at Desjardins Group, stated, “The Canadian dollar has rallied quite a bit beyond our expectations,” adding that it could weaken soon if expectations for significant interest rate cuts from the Federal Reserve start to diminish.

Investors are awaiting Friday’s U.S. and Canadian employment reports for insights into whether central banks will ease in 50 or 25 basis points increments. A rise in the U.S. unemployment rate to near a three-year high of 4.3% in July has unsettled markets and sparked recession fears.

The Bank of Canada (BoC) reduced its benchmark interest rate for a third time since June, cutting it by 25 basis points to 4.25%. The Federal Reserve is anticipated to start its easing cycle later this month.

However, monetary policy takes time to influence the global economy. Canada, a key commodity producer, particularly in oil, is sensitive to global economic trends.

Oil prices plunged to their lowest this year on Wednesday, as weak data from the U.S. and China heightened worries about a slowing global economy.

Jean noted, “Later in 2025, the effects of those rate cuts should be more visible. We expect a bit of a pick-up in China and Europe towards the end of 2025, boosting oil prices somewhat.”

(Other stories from the September Reuters foreign exchange poll)