Canadian dollar to stick close to par: poll

The Canadian dollar will remain near parity with the US dollar this year, though slightly softer than current levels, with global growth prospects providing support, according to a Reuters poll on Wednesday. Median forecasts show the Canadian dollar at par with the US dollar in one, six, and twelve months' time, with a slightly stronger profile at C$0.9900 to the US dollar, or $1.0101, in three months' time.
The forecasts are broadly similar to those in the January foreign exchange poll. At 2:55 pm (2055 GMT), the Canadian dollar was at C$0.9885 to the US dollar, or $1.0116, firmer than the median view for the year. It has hovered around par with the US dollar since late last year.
"Parity for Canada is really fairly sustainable this time round," said Camilla Sutton, chief currency strategist at Scotia Capital. But she noted that Canadian businesses should not be complacent about the exchange rate, echoing recent cautionary remarks from the Bank of Canada warning that waiting for a weaker currency was not a good business strategy. "The corporate side of Canada has gotten fairly comfortable with that and could be left exposed if there was a shock," Sutton said.
The Bank of Canada has recently stepped up warnings to corporate Canada, saying the private sector was losing competitiveness and US market share due to low productivity and high labour costs. The central bank said the high-flying currency was partly to blame, but it also urged businesses to pick up the pace of investment to support the domestic recovery. Senior Deputy Governor Tiff Macklem repeated the message twice this week.
Still, the Bank of Canada has been relatively lucky compared with other central banks around the world in dealing with swings in their domestic currencies. "Most central banks are struggling with how to bring about less volatility in their currencies in order to maintain the system," said Sutton.
"The Bank of Canada doesn't have to struggle with that problem because they've had a reasonably stable currency, even though it's had an appreciatory bias,... over the last year and half." Recent data has suggested the global economy is picking up speed, especially in the United States. Growing optimism about the US economy often supports Canada's dollar because the country's export-oriented economy is closely tied to the health of the United States.
A stronger world economy could also prompt demand for resources, such as oil and metals, which would also support Canada's commodity-linked currency. It might also prompt the Bank of Canada to resume raising interest rates after increasing them three times last year. But market watchers are split on the timing of the next rate hike.
"We're constructive on global growth. China will probably slow down a little bit but not enough to really cool off commodity prices significantly," said Benjamin Reitzes, an economist at BMO Capital Markets. The most bullish forecast on the Canadian dollar put the currency at C$0.93 to the US dollar, or $1.0753, well off the previous poll's firmest view of what would be a record high at C$0.90 to the US dollar, or $1.11. The modern-day record high was reached in November 2007 at C$0.9066 to the US dollar, or $1.1030, according to Bank of Canada data. The survey of 49 strategists was conducted between January 31 and February 2.