Canadian dollar gains seen capped by central bank divergence
By Fergal Smith
TORONTO, July 3 (Reuters) -The Canadian dollar is set to strengthen over the coming year but its gains will be limited after the Bank of Canada began cutting interest rates ahead of the Federal Reserve and as the U.S. election fans economic uncertainty, a Reuters poll found.
The median forecast of more than 40 foreign exchange analysts in the June 28-July 3 poll showed the loonie CAD= will be little changed at 1.3700 a U.S. dollar, or 72.99 U.S. cents, in three months, compared to 1.3667 in last month's poll.
It was predicted to advance 2.4% to 1.3350 in a year, versus 1.3333 expected previously.
"We expect the BoC to cut in July, whereas the bands of uncertainty around the U.S. inflation and Fed outlook are wider, with a risk of the Fed holding rates high for longer," said Jayati Bharadwaj, a global FX strategist at TD Securities.
Last month, the BoC became the first G7 central bank to begin easing monetary policy, lowering its benchmark rate by 25 basis points to 4.75%.
Investors see a roughly 40% chance the BoC eases further at its next policy decision on July 24, while they expect the Fed to wait until at least September before beginning its easing cycle, swaps market data shows. 0#BOCWATCH0#FEDWATCH
The U.S. election could also weigh on the loonie, Bharadwaj said.
U.S. President Joe Biden faces former President Donald Trump in the November presidential election. Trump has vowed to increase tariffs on Chinese imports, potentially unleashing a new trade war.
Canada is a major producer of commodities, including oil, so its economy is particularly dependent on trade, especially with the United States, to which it sends 75% of its exports.
(For other stories from the July Reuters foreign exchange poll: nL4N3IM0R6)
Reporting by Fergal Smith; Polling by Purujit Arun, Pranoy Krishna and Rahul Trivedi; Editing by Clarence Fernandez
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