Canada’s dollar seen higher if commodity prices rebound

The Canadian dollar is set to gain more than 2% against its United States counterpart in a year as an expected recovery in the global economy from the Covid-19 crisis improves the outlook for commodity prices, a poll showed.

The loonie is expected to strengthen 0.6% to 1.32 per U.S. dollar, or 75.76 U.S. cents, in three months from about 1.3280 on Thursday, the poll of more than 40 currency strategists showed.

It is then expected to climb to 1.30 in one year, matching last month’s forecast. “We expect oil and other commodity prices to rebound, particularly in the second half of 2021,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. “That should pull CAD higher as well.”

Oil, one of Canada’s major exports, has slumped about 37% since the start of the year to less than $39 a barrel as global economic activity collapsed due to the coronavirus pandemic and lockdown measures. But a separate Reuters poll this week predicts very little upside for the price of crude in the near term.

Next year could be a different story. The Organization for Economic Cooperation and Development projected this month that the world economy would expand by 5% in 2021 after an expected 4.5% contraction this year.

Economists expect Canada’s economy to suffer a smaller hit from a resurgence in infections than earlier this year, as provinces strive to avoid broad-based lockdowns and after Canadian Prime Minister Justin Trudeau vowed to double down on pandemic-related spending.

Ottawa has forecast a budget deficit of C$343 billion ($258 billion) for this fiscal year, which at about 16% of GDP is the largest shortfall since World War Two. Government spending along with record low interest rates set by the Bank of Canada have helped support the economy, including home prices.

They have increased more sharply than expected this year, but are set to rise by less than consumer inflation in 2021 as higher unemployment and lower immigration levels cool down the market, a separate Reuters poll showed.

Canada’s dollar seen higher if commodity prices rebound via @MasterMindUpdate
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