By Fergal Smith
TORONTO (Reuters) – The Canadian dollar is expected to recoup only a small fraction of its recent losses over the coming year as the threat of U.S. trade tariffs hampers the outlook for Canada’s export-dependent economy, a Reuters poll found.
The median forecast of 36 foreign exchange analysts in the Dec. 2-4 poll predicted the loonie would edge 0.3% higher to 1.4034 per U.S. dollar, or 71.26 U.S. cents, in three months, compared to the 1.36 level expected in a poll last month.
In a year, the currency was forecast to be up 0.4% at 1.4020, versus 1.32 seen previously. The currency has tumbled nearly 5% since late-September.
“If the U.S. puts tariffs of upwards of 25% on Canada, the main adjustment that would take place would likely be through the currency,” said Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets. “That would help offset some of the tariffs but not all of them.”
U.S. President-elect Donald Trump has pledged to impose a 25% tariff on imports from Canada and Mexico until they clamp down on drugs and migrants crossing the border. Canada sends about 75% of its exports to the United States, including oil and cars.
The Bank of Canada has said if Trump follows through on his threat it would have an impact on both economies and the central bank would incorporate those into its economic forecasts.
Investors expect the central bank to continue its easing campaign at a policy decision on Wednesday. The BoC has cut its benchmark rate by 1.25 percentage points since June to support the Canadian economy, lowering borrowing costs to 3.75%.
Canadian Prime Minister Justin Trudeau has promised Trump that Canada will toughen controls over the long undefended joint border. Still, the mere threat of tariffs could forestall business investment.
“Until there’s clarity on the free trade front, and specifically free trade with the U.S., it will be difficult for some businesses to be putting new money to work in Canada,” Reitzes said.
(Other stories from the December Reuters foreign exchange poll)
This post is originally published on INVESTING.
