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Canadian dollar forecasts grow more bullish as economy strengthens: Reuters poll – The Guardian

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By Fergal Smith

TORONTO (Reuters) – Analysts have raised their Canadian dollar forecasts for the coming year, expecting the currency to benefit from faster growth in the domestic economy and a potential reduction by the Bank of Canada of its bond purchases, a Reuters poll showed.

The loonie advanced 1.4% against the U.S. dollar in the first quarter, its fourth straight quarterly gain and the best performance among the G10 currencies.

The median forecast of more than 30 strategists was for the Canadian dollar to rise a further 0.6% over the next three months to 1.25 per U.S. dollar, or 80 U.S. cents.

It was then expected to climb to 1.23 in one year, compared with a 1.25 forecast in March’s poll.

“We expect the Canadian dollar to be a general outperformer among the G10 over the coming year,” said Erik Nelson, a currency strategist at Wells Fargo in New York.

“Canada’s economy looks poised to enjoy one of the strongest growth rebounds this year thanks to a combination of domestic fiscal support, higher commodity prices and spillover from U.S. demand.”

Canada sends about 75% of its exports to the United States, including oil, which has soared about 80% since last November.

Data on Wednesday showed Canada’s economy expanded for a ninth consecutive month in January and most likely grew in February, adding to evidence a recovery from the coronavirus pandemic was stronger than expected.

That could encourage Canada’s central bank to dial back the pace of stimulus.

“The Bank of Canada is likely to be among the first to taper asset purchases, furthering yield support for the loonie,” Nelson said.

Strategists expect the bank to cut this month the amount of bonds it buys each week to C$3 billion from C$4 billion. Canada’s 5-year yield trades about 7 basis points above the equivalent U.S. rate.

The country is facing a potential third wave of COVID-19 infections. Still, vaccine supplies are picking up, which could help narrow the economic advantage of the United States, one of the countries with the fastest rollouts.

“The U.S. economy will likely do well in the short term, but several other countries will be following in its wake soon as vaccination will progress,” said Hendrix Vachon, a senior economist at Desjardins.

(For other stories from the April Reuters foreign exchange poll:)

(Reporting by Fergal Smith; Polling by Manjul Paul and Mumal Rathore; Editing by Mark Heinrich)

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Canadian dollar notches biggest gain in a month as stocks rally

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The Canadian dollar strengthened to a one-week high against its U.S. counterpart on Thursday as investor sentiment picked up and domestic data showed that retail sales fell less than expected in July.

World stock markets rallied and the safe-haven U.S. dollar retreated from one-month highs as worries about contagion from property developer China Evergrande eased and investors digested the Federal Reserve’s plans for reining in the stimulus.

Canada is a major exporter of commodities, including oil, so the loonie tends to be particularly sensitive to investor appetite for risk.

“The assumption here is that (Fed interest) rate hikes are still a long way out and so equities markets can still perform with accommodative financial conditions,” said Mazen Issa, senior FX strategist at TD Securities in New York.

“Consequently, currencies that have a higher beta to the equity market, like the CAD, can do alright.”

U.S. crude oil futures settled 1.5% higher at $73.30 a barrel, while the Canadian dollar was trading up 0.9% at 1.2653 to the greenback, or 79.03 U.S. cents.

It was the currency’s biggest advance since Aug. 23. It touched its strongest level since last Thursday at 1.2628.

Canadian retail sales dipped 0.6% in July, compared with expectations for a decline of 1.2%, while a preliminary estimate showed sales rebounding 2.1% in August.

Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries.

The 10-year touched its highest level since July 14 at 1.335% before dipping to 1.330%, up 11.6 basis points on the day.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Peter Cooney)

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China Vows Better Policy Support to Economy as Headwinds Mount – BNN

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(Bloomberg) — Chinese policy makers reiterated the need to fine-tune economic policies as the world’s second-largest economy faces increasing headwinds from virus outbreaks and high commodity prices. 

Policy should be preemptive and coordinated across cycles, the State Council, the equivalent of China’s cabinet, said in a statement after a meeting chaired by Premier Li Keqiang Wednesday. Governments at all levels should maintain the continuity and stability of macroeconomic policies and enhance their effectiveness, while also do a good job in preventing and controlling virus cases, it said.

Efforts are needed to better coordinate fiscal, financial and employment policies in order to “stabilize reasonable expectations by the market,” it said. 

China again vowed to make sure the economy is operating within a reasonable range, with further measures to boost consumption, guiding private capital to play a better role in expanding investment, and ensuring stable growth in foreign trade and foreign capital, according to the statement. While the employment situation is stable this year, efforts are still needed to maintain employment and help companies, it said. 

The economy took a knock in August from stringent virus controls and tight curbs on property. While China’s Covid zero approach helped to quickly quash the infections, retail sales growth suffered, slowing to 2.5% in August. 

Facing the continued commodity boom, the State Council also pledged to use more market-based measures to stabilize commodity prices and ensure supplies of power and natural gas during the winter. 

©2021 Bloomberg L.P.

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UAE Says It's Unwinding Pandemic Stimulus as Economy Recovers – Bloomberg

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The United Arab Emirates has begun winding down an economic support program launched in response to the coronavirus pandemic as the economy shows signs of gradual recovery, the central bank said in a statement.

The reduced reserve requirements for banks won’t change for now and neither will the lower loan-to-value ratio required for first-time home buyers seeking mortgage loans, the bank said. The loan deferral component of the Targeted Economic Support Scheme will expire by the end of 2021 with financial institutions able to carry on tapping a collateralized 50-billion-dirham ($13.6 billion) liquidity facility until the middle of 2022, in line with earlier guidance.

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