Canadian dollar forecasts more bullish as geopolitical risk ebbs: Reuters poll

By Fergal Smith

TORONTO, May 7 (Reuters) – The Canadian dollar is expected to give back some recent gains against its U.S. counterpart in the coming months, but could resume its uptrend if economic uncertainty linked ​to the Middle East war and U.S. tariffs eases, according to a ‌Reuters poll.

A median forecast of 27 foreign exchange analysts in the May 1-6 poll put the Canadian dollar down 0.3% at 1.3667 per U.S. dollar, or 73.17 U.S. cents, in three months – slightly stronger than the 1.37 level forecast in a survey last month.

In 12 months, ‌the ​loonie is seen up 1.5% at 1.3433, compared with ⁠1.3500 in the previous forecast.

“We ⁠have already seen a substantial repricing of risk, with geopolitical premiums going away, but ongoing uncertainty surrounding the U.S.-Iran conflict suggests the pair may remain range-bound in the near term,” said Sarah Ying, head of foreign exchange strategy ​at CIBC Capital Markets.

Iran said on Wednesday it was reviewing a new U.S. proposal, after sources said Washington and Tehran were closing in on a ⁠one-page memorandum to end the war in the ⁠Gulf, while leaving contentious issues such as Iran’s nuclear programme ​for later.

“Improving risk conditions, an erosion in (U.S.) dollar haven demand, and a terms-of-trade tailwind ​from persistently higher oil prices are all factors that favour USD-CAD ‌downside,” said Nick Rees, head of macro research at Monex Europe.

Oil, which has surged since the closure of the Strait of Hormuz, is a major Canadian export.

The Bank of Canada has said that if oil prices stay high and begin pushing ⁠up inflation, it may need to respond with consecutive interest-rate hikes. Investors expect two increases this year, swap market data show. However, a majority of economists surveyed by ⁠Reuters late last month ‌said borrowing costs would remain unchanged this year.

“Granted, markets ⁠may have to navigate CUSMA negotiations first, but assuming no ​significant surprises, ‌we would expect the loonie to make gains against ​the dollar ⁠into the back end of the year,” Rees said.

The Canada-United States-Mexico Agreement, a continental trade pact, also known as USMCA, has shielded much of Canada’s exports from U.S. tariffs. It is due for review by a July 1 deadline.

(Other stories from the May Reuters foreign exchange poll)

(Reporting by Fergal Smith. Polling by Aman Kumar Soni. ​Editing by Mark Potter)