Canadian dollar seen rising

The Canadian dollar is expected to strengthen over the coming year as a clearer outlook for the NAFTA trade pact opens the door to more Bank of Canada interest rate hikes, a Reuters poll of currency strategists showed. The loonie has weakened in recent weeks against a broadly stronger US dollar despite the price of oil, one of Canada's major exports, surging to its highest in more than three years.
Strategists said the loonie has been pressured by the Bank of Canada's caution on raising interest rates too fast in the face of a number of uncertainties for the domestic economy, such as a cooling housing market and renegotiation of the North American Free Trade Agreement.
"There is a lot of focus on NAFTA and other political noise at the moment, that is dampening the Canadian dollar," said Shaun Osborne, chief currency strategist at Scotiabank. "Once we get some clarity on that, hopefully in the next few weeks, I expect the Canadian dollar to strengthen."
Ministers from Canada, the United States and Mexico have been pushing this week for a deal to rework the 24-year-old accord, seeking to resolve an impasse in key areas before elections in Mexico and the United States complicate the process.
Canada sends about 75 percent of its exports to the United States so its economy could benefit if a deal is reached.
The poll of more than 45 foreign exchange strategists predicted that the loonie will rise to C$1.26 to the greenback, or 79.20 US cents, in three months, from around C$1.277 on Thursday.
"The Canadian dollar remains much weaker than levels that would typically be associated with current oil prices," said Krishen Rangasamy, a senior economist at National Bank Financial.
Oil has been boosted this week by US President Donald Trump's decision to quit a nuclear deal with Iran.
Rangasamy expects uncertainties related to NAFTA and the housing market to fade in coming months and for the Bank of Canada to turn its focus to rising inflation pressures.
Canada's annual inflation rate strengthened to 2.3 percent in March, the second straight month it has exceeded the Bank of Canada's 2.0 percent target.
The central bank has raised its benchmark interest rate, now at 1.25 percent, three times since July. Money markets, as well as economists polled by Reuters, expect the central bank to hike twice more this year.
That is less than the three additional rate increases by December some investors are expecting from the US Federal Reserve.