Fergal Smith

TORONTO, (Reuters) – The Canadian dollar is predicted to rise further in the next 12 months. This will be due to higher oil prices, and the Bank of Canada’s shift towards a more hawkish stance.

According to Reuters, the median prediction of 36 strategists was that the Canadian currency would trade at 1.24 US Dollars, or 80.65 U.S. Cents per month, approximately its current level. It is also higher than 1.25 last month.

In a year, it was expected that the currency would strengthen by 1.6% to 1.22. The October forecast called for 1.23.

In 2021, the index has advanced 2.6%. The June high was 1.20, which is a new six-year record.

This level could be reassessed if the Bank of Canada begins “a fairly aggressive tightening cycle”, said Shaun Osborne chief currency strategist at Scotiabank.

The Bank of Canada, which was the first G7 nation’s central bank to withdraw quantitative easing last week, indicated it may begin raising interest rates as early as April. This is three months earlier than initially thought.

The money markets anticipate a liftoff in March, and approximately 125 basis points total tightening next year. In contrast, the gap between Canadian 2-year yields and U.S. 2-year yields is expected to rise to 60 basis points for the Canadian bond, which has seen the largest gap in seven-years.

Canadian October employment data are due Friday. This could provide further insight into the future outlook on rates.

Hendrix Vachon (Senior economist, Desjardins) stated that the recent rise in oil prices has helped the loonie. According to historical relations, there is still some appreciation potential.

When oil, Canada’s largest export, traded at above $80 per barrel in 2014, the Canadian dollar peaked at around 1.13

Analysts believe the Federal Reserve will give the U.S. Dollar a boost, by beginning to reduce its bond-buying program.

Osborne, Scotiabank, stated that Canada’s decent growth, high interest rates, and stable commodity prices are all supportive of the currency.