By Fergal Smith
TORONTO, Feb 8 (Reuters) - The Canadian dollar is set to
rise later this year as the global economic outlook turns more
favorable for commodity-linked currencies and investors bet
central banks will cut interest rates in 2024, according to a
Reuters poll released on Wednesday.
In three months, however, the loonie is set be little
changed at 1.34 per U.S. dollar, or 74.63 U.S. cents, according
to the median forecast from currency analysts, though that was
slightly stronger than January's forecast of 1.35.
The loonie was then expected to strengthen to 1.30 in a
year, a gain of just over 3%, but unchanged from the January
poll forecast.
"China is one of the big fundamental drivers for why there
is growing optimism ... With that demand coming back, it's going
to be supportive of the global economy and it could be a boost
to pro-cyclical currencies," said Jay Zhao-Murray, market
analyst at Monex Canada Inc.
The rapid reopening of the world's No. 2 economy is likely
to fuel demand for commodities produced in abundance by Canada,
potentially helping to avoid a recession as long as it does not
also force up inflation and spur further interest rate hikes.
Other commodity-linked currencies, such as the Australian
dollar , and emerging market currencies are also expected
to benefit from China's reopening, according to the broader
monthly Reuters foreign exchange poll.
The Bank of Canada last month became the first major central
bank to pause its tightening campaign, saying it would take time
to assess how well rate increases are working to bring inflation
down.
"Central banks are starting to pause, and I think that is
going to create a bit more of a supportive environment for
cyclical currencies like the loonie, especially in the second
half of the year," Zhao-Murray said.
The U.S. Federal Reserve, the European Central Bank and the
Bank of England have laid the groundwork for a pause as well,
although they are not done raising rates.
With the end of tightening in sight, money markets are
betting the Fed and the BoC will shift to cutting rates by the
end of the year and then ease more forcefully in 2024. Stocks are likely to benefit later this year from the
prospect of "an eventual reflationary dynamic," said Mazen Issa,
senior FX strategist at TD Securities in New York.
"That should also help to support non-dollar currencies, so
anything like the Canadian dollar."
The loonie tends to have a strong positive correlation with
equity markets.
(For other stories from the February Reuters foreign
exchange poll: )
(Reporting by Fergal Smith; Polling by Susobhan Sarkar, Mumal
Rathore and Shaloo Shrivastava; Editing by Paul Simao)
