Canadian dollar to remain weak

The battered Canadian dollar will stay weak in the coming months as the Bank of Canada and US Federal Reserve look set to take completely different policy paths, a Reuters poll of currency strategists forecasts. Volatile oil prices mean the commodity-sensitive currency has lost about 14 percent against the greenback since the start of the year.
Canada's central bank has cut interest rates twice this year to mitigate the impact of cheaper oil on the economy. Accommodative monetary policy and the plunge in crude prices pushed the currency to 11-year lows last week.
US dollar strength, driven by investors betting the Fed could raise rates as early as this month, has also pressured the loonie, something analysts expect will be exacerbated if the US tightens while the Bank of Canada remains accommodative.
"Right now the number one factor is monetary policy and then right next to it, critically important, is commodity prices, particularly oil," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
"The market is trading with one eye nervously tracking oil at all times."
The poll of nearly 40 foreign exchange strategists forecast the Canadian dollar would trade at C$1.33 to the dollar in three and six months. That is modestly weaker than where it was trading on Tuesday and a downgrade from the C$1.31 forecast for both months in last month's poll.
The currency is expected to recover slightly to C$1.30 in a year.
While gross domestic product data earlier this week confirmed Canada fell into a mild recession in the first half of the year, growth in June was better than expected, leaving the BOC in a position to keep monetary policy unchanged at its September meeting, economists say.
However, some analysts still see a risk the bank will cut again, which would add pressure on the currency.
"The market might price in the probability of a cut even if that cut does not actually come," said Andrew Grantham, economist at CIBC.
A major oil exporter, Canada is still reeling from the sharp fall in oil prices that started in mid-2014. A separate Reuters poll of commodity analysts predicted a gradual recovery in crude prices over the next year.
Many experts remain doubtful, however, that oil prices will soon achieve any significant recovery.