Fergal Smith

TORONTO, (Reuters) – The Canadian dollar will lose ground in the next year because analysts anticipate slower global economic growth as well as accelerating inflation that could undermine the support of higher oil prices.

According to a Reuters poll, the median prediction of 45 economists was that the Canadian currency would increase 0.7% over three months, to $1.25, 80.00 U.S. dollars, compared with 1.235 last month.

In a year, it was expected that the price would rise to 1.23. It was 1.22 in September.

Simon Harvey is senior FX market analyst at Monex Europe, Monex Canada. “We expect the U.S. dollars downside to become more limited in this current lower inflation and growth environment,” he said. “The greenback’s strength won’t support the currency as well.”

As investors worry that rising energy prices will increase inflation pressures and threaten the recovery of global economies, U.S. dollars have risen to an all-time high in recent days.

A second headwind to the Canadian dollar (nicknamed the loonie) is the sensitiveness of Canada’s economy towards higher interest rates.

Bipan Rai from CIBC Capital Markets North America, head FX strategy, stated that Canada has a higher private sector dependence than the United States.

Rai said that it was more difficult for Bank of Canada than the Federal Reserve to raise interest rates as aggressively.

There will be at least two interest rate increases by Bank of Canada next year, in comparison to just one by the Fed. Money market investors should expect this so that they can adjust their expectations.

On Friday, the U.S. and Canadian employment data for September will be available. This could give clues as to how both central banks view policy.

Analysts still expect that the loonie will be supported by higher crude oil prices. Canada is the world’s largest oil producer. The price of crude rose this week to an all-time high of seven years.

Hendrix Vachon is a Desjardins senior economist. He stated, “The Canadian Dollar will remain supported by the high prices of several commodities and a gradual fall in global economic uncertainty.”

(For additional stories, see the October Reuters foreign-exchange poll: