Canadian Dollar Rally Expected to Resume in 2025 if Global Economy Rebounds: Reuters Poll

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar is expected to give back some of its recent gains in the coming months, but it might rise again in 2025 if easing cycles from central banks boost the global economy and increase demand for commodities, according to a Reuters poll.

Since reaching a near two-year low of 1.3946 U.S. dollars, or 71.71 U.S. cents, in August, the loonie has appreciated by 3.3%, driven by short covering and a general decline of the U.S. dollar.

A median forecast from over 30 foreign exchange analysts in a poll conducted from August 30 to September 4 indicates the loonie will weaken approximately 1% to 1.365 in three months, compared to the 1.380 projected in an earlier poll in August. In a year’s time, the currency is anticipated to strengthen by 1.3% to 1.3333, slightly up from the previous forecast of 1.3350.

"The Canadian dollar has rallied quite a bit beyond our expectations," remarked Jimmy Jean, chief economist at Desjardins Group, suggesting that the currency could face downward pressure in the near term if anticipation for significant interest rate cuts by the Federal Reserve diminishes.

Investors are awaiting employment reports from both the U.S. and Canada, which may provide insights into the likelihood of central banks opting for 50 basis point reductions instead of 25. A rise in the U.S. unemployment rate to approximately a three-year high of 4.3% in July has unsettled financial markets and raised recession fears.

The Bank of Canada recently reduced its benchmark interest rate for the third time since June, lowering it by 25 basis points to 4.25%. The Federal Reserve is expected to start its easing cycle later this month.

However, since monetary policy typically has a delayed impact, it may take time for the global economy to reflect the benefits of lower borrowing costs. As a major commodity producer, including oil, the loonie is particularly influenced by the global economic outlook.

On Wednesday, oil prices dropped to their lowest level this year as disappointing data from the U.S. and China reinforced concerns regarding a sluggish world economy.

"Later in 2025, the effects of those rate cuts should be more apparent," Jean noted. "We anticipate some improvement in China and Europe toward the end of 2025, which could bolster global demand and push oil prices higher."