The Canadian dollar, the loonie, has lost luster in recent weeks as analysts have scaled back their near-term forecasts. The reasons for this are the ailing Chinese economy and rising interest rate differentials between the USA and Canada.
China’s economic growth is slowing as policymakers try to address the property market downturn. Canada is a major commodity producer, so the loonie tends to be sensitive to global, including Chinese, growth prospects. Still, analysts remain optimistic that the loonie will be stronger in a year, according to a Reuters poll.
The average forecast of about 40 foreign exchange experts is for the loonie to rise 1.9% to $1.34 per Canadian dollar in the next three months, compared with the previous forecast of $1.32.
In the coming year, the currency is expected to rise to $1.29, a 5.8% increase.
The Bank of Canada left its key interest rate at 5% and stated that the economy is entering a phase of weaker growth.
Canada’s economy contracted unexpectedly in the second quarter, and August employment data due Friday could provide further insight into the domestic outlook.
The USD/CAD exchange rate has gained almost 4.5% at times in a significant upward movement since mid-July, indicating growing strength in the U.S. dollar and weakness in the CAD. However, the share price is also at a relatively high level in the long term. Today the price has increased 0.1% and is trading at CAD 1.3648.