Canadian dollar expected to strengthen in 2025 as interest rate cuts boost economy: Reuters poll By Reuters

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar is expected to extend its recovery against its U.S. counterpart next year as lower borrowing costs support economic growth in Canada and boost investors’ appetite for risk, a Reuters poll found.

Canada has risen 3.3 percent since hitting a near two-year low of 1.3946 per U.S. dollar, or 71.71 U.S. cents, in August.

The average forecast of almost 40 currency analysts in the period September 30-Oct. Poll 2 showed the wolf consolidating those three-month gains, falling 0.1% to 1.3514 but remaining stronger than the 1.3650 expected in a September poll.

In one year, the currency was estimated to advance 1.7% to 1.3275, compared to 1.3333 seen previously.

The Bank of Canada is expected to continue cutting its benchmark interest rate in the coming months, after cutting it by 75 basis points since June to 4.25%, while the US Federal Reserve began its own campaign of relaxation in September.

Canada’s economy is particularly sensitive to interest rates. Its mortgage cycle is shorter than in other major economies, while household debt as a share of net disposable income, at 184% in 2023, is by far the highest in the G7, according to OECD data.

“Domestic interest rate cuts will begin to provide considerable stimulus to the domestic economy, while Fed easing should also be a boost to risk conditions more broadly, all of which provide a constructive bearish backdrop into the new year,” said Nick Rees, senior market FX. analyst at Monex Europe.

Canada is a major producer of commodities, including oil, so its currency tends to be sensitive to changes in investor sentiment. A potential wild card is the outcome of the US election in November.

“We look for a modestly stronger loonie in 2025 as the U.S. dollar loses some of what it gained as a carry beneficiary,” Avery Shenfeld and Katherine Judge, economists at CIBC Capital Markets, said of the interest income earned by investors buying the green ticket. and selling low-yielding currencies.

“US fiscal and trade policies could change this view after the US election,” the economists added in a note.

“But right now, there’s too much uncertainty about who will take the White House, the makeup of Congress, or what presidential campaign pledges would actually see the light of day, to consider that to any significant degree.”

(Other stories from October’s Reuters currency survey)