Since the Canadian dollar touched a nearly two-year low of 1.3946 (approximately 71.71 cents) in August, it has risen by 3.3% due to short-covering and general dollar weakness.
According to a survey conducted from August 30 to September 4, the median forecast of more than 30 foreign exchange analysts suggests that the Canadian dollar could fall by about 1% to 1.365 within the next three months, down from the August forecast of 1.380. Additionally, it is expected to rise by 1.3% to 1.3333 in a year, slightly below the previous forecast of 1.3350.
Jimmy Jean, Chief Economist at Desjardins Group, pointed out, "The rise in the Canadian dollar far exceeds our expectations," and stated that if expectations for significant rate cuts by the Federal Reserve gradually fade, the Canadian dollar might weaken in the short term.
Investors are currently closely watching the upcoming employment reports from the United States and Canada on Friday to determine whether central banks in both countries will opt for a 50-basis-point rate cut instead of 25 basis points. The U.S. unemployment rate for July rose to 4.3%, the highest in nearly three years, sparking financial market volatility and increasing recession fears.
On Wednesday, the Bank of Canada cut its benchmark interest rate by 25 basis points to 4.25%, marking the third rate cut since June. Meanwhile, the Federal Reserve is expected to embark on a stimulus cycle later this month.
However, the effects of monetary policy typically have a lag, so the global economy may take time to feel the impact of lower borrowing costs. As one of the world's major commodity producers, Canada's economy is closely tied to the global outlook, especially as oil exports make the Canadian dollar particularly sensitive to global economic conditions.
Recent weak economic data from the United States and major Asian economies have further heightened expectations of a global economic slowdown, leading to oil prices falling to a new low for the year on Wednesday.
Jimmy Jean added, "By the second half of 2025, the effects of rate cuts should become more evident. We anticipate that by then, oil prices in Asia and Europe will slightly recover, and global demand may drive oil prices higher."
