If Recession Concerns Subside, The Canadian Dollar May Increase.

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Analysts expect the Canadian dollar to rally over the coming year, betting the threat of recession will ease as the U.S. Federal Reserve and the Bank of Canada likely wind down rate-hike cycles in 2023, a Reuters poll showed.

The loonie has outperformed most G10 currencies in 2022, but has weakened 1.7% against its broadly stronger U.S. counterpart .

“USD strength comes from both Fed rate hikes as well as fears that those hikes will provoke a recession in 2023,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

The median forecast in the poll was for Canada’s currency to edge 0.3% higher to 1.28 per U.S. dollar, or 78.13 U.S. cents, in three months’ time, matching July’s forecast. It was then expect to climb to 1.25 in one year.

Reuters.

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