Canadian Dollar Expected to Weaken Before Rebounding on Trade Deal

Canada's dollar is expected to weaken in the short term before recovering in the long term, according to a Reuters poll of foreign exchange analysts. The median forecast was for the Canadian dollar to edge 0.4 per cent lower to 1.39 US dollars, or 71.94 US cents, in three months.

This is down from a previous forecast of 1.40 US dollars last month. However, in 12 months, the Canadian currency is expected to strengthen by 1.8 per cent to 1.36 US dollars.

Nick Rees, head of macro research at Monex Europe, said that while they are bearish on the loonie in the short term, they expect trade tensions with the US to eventually be resolved with a deal, allowing domestic macro data to recover.

Analysts also expect a modest strengthening of the Canadian dollar by the end of next year, with Mirza Baig from Desjardins predicting it will reach 1.35 US dollars as investment spending in Canada accelerates and interest rates narrow.