POLL-Analysts raise Canadian dollar forecasts, expecting trade tensions to ultimately fade

Canada's dollar will edge lower ​in coming months before notching moderate gains ​in a year if a resolution is ‌reached ​in the trade conflict with the United States, a Reuters poll showed.

The median forecast of 32 foreign exchange analysts in an August 31 to September ‌2 poll was for the Canadian dollar to edge 0.4% lower to 1.39 per U.S. dollar, or 71.94 U.S. cents, in three months, compared with a 1.40 forecast in a survey last month. In 12 months, the Canadian currency ‌is expected to strengthen 1.8% to 1.36, versus 1.3660 in the previous forecast.

"While we are bearish on ‌the loonie in the short term, we expect many of the factors currently weighing against the Canadian dollar to fade," said Nick Rees, head of macro research at Monex Europe. "Trade tensions with the U.S. should eventually be resolved with a deal, regardless of present posturing, ⁠allowing ​domestic macro data to recover."

Last ⁠month, the U.S. imposed new 50% tariffs on at least $20 billion of imports from Canada after talks between the two countries collapsed. The Bank ⁠of Canada said on Wednesday it does not expect the tariffs to have a large direct impact on the ​economy as it left its benchmark interest rate on hold at 2.25%, adding that the ongoing Middle East ⁠conflict had raised upside risks to the inflation outlook.

"We do expect a modest strengthening to 1.35 by end of next year," said ⁠Mirza ​Baig, a foreign exchange strategist at Desjardins. "We believe this will come about as the gap between U.S. and Canadian interest rates will narrow, and investment spending in Canada will accelerate." Investors expect about 100 basis points ⁠in tightening from the BoC by the end of 2027, which would move the policy rate toward the top ⁠of the central bank's ⁠estimated 2.25% to 3.25% range for the neutral interest rate — the rate at which borrowing costs are neither slowing nor boosting the economy.

(Other stories from the September ‌Reuters foreign exchange poll)