Canadian Dollar Enjoys Renewed Bullish Traction Amid BoC Rate Hike Talks

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The Canadian dollar (CAD) currently enjoys a near-term bullish outlook as the Bank of Canada (BoC) reportedly prepares for an aggressive rate hike. However, a Reuters poll suggests that the CAD could see a cap on its gains due to its dependence on the housing market.

According to the poll, the median forecast is that Loonie should climb by 0.4% to 1.25 against the US dollar in the next three months, a similar forecast to the one seen in February. Median forecasts also predicted that the currency pair could climb to 1.23 in a year.

Commenting on the potential price action of the CAD, director and head of macro strategy at Desjardins, Royce Mendes, explained that should the Russia-Ukraine tensions ease over the coming months, “there will be both a reason for a bit more of a risk-on trade, which would be beneficial to the Canadian dollar, but also some help from the Bank of Canada, in so far as it front-loads rate hikes.”

That said, the general prediction by economists suggests that the Bank of Canada will increase its interest rate by 50 basis points at its next policy meeting, scheduled for April 13. Interestingly, the BoC has not recorded such aggressive interest rate hikes in over two decades.

Canadian Dollar Gains Capped by Russia-Ukraine War

As the Russia-Ukraine war rages, demand for safe-haven currencies like the US dollar has surged significantly, leaving the CAD without much upward traction, despite the booming oil prices. However, analysts argue that this could change soon. Senior Canada economist at Capital Economics, Stephen Brown, commented: “I think there is still scope for a boost as investors digest some of the positive impact[s] those higher commodity prices are having on the Canadian economy.”

That said, Canada enjoyed record high energy exports in February considering it is a major producer and exporter of energy products. Economists have predicted more gains in energy exports for the country in the near term.