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Canadian dollar forecasts boosted as vaccine rollout accelerates: Reuters poll

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Fergal Smith
·2 min read
FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto
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By Fergal Smith

TORONTO (Reuters) - Canadian dollar forecasts for the coming months have been raised by strategists, reflecting recent gains for the currency but also expectations commodity prices will benefit from the reopening of the global economy, a Reuters poll showed.

Canada is a major producer of commodities, including oil, which has soared about 80% since November, helped by supply cuts from major producers and the prospect of stronger global economic growth this year as COVID-19 vaccines roll out.

The United States expects to have enough vaccine for every American adult by the end of May. Canada's vaccination campaign is also ramping up after earlier supply disruptions. Its target for full rollout is September.

"I think the economy is going to open up quickly and oil prices are going to stay firm," said Ronald Simpson, managing director, global currency analysis at Action Economics. "Rising activity in Canada is going to probably help the Canadian dollar as well."

Canada's economy grew at an annualized rate of 9.6% in the fourth quarter. It probably expanded again in January despite lockdowns in some provinces to contain the pandemic.

Evidence of economic resilience has raised speculation the Bank of Canada will reduce its bond purchases as soon as April. The central bank is due to make an interest rate decision on March 10.

The median forecast of nearly 40 analysts in the March 1-3 poll was for the Canadian dollar to edge 0.4% higher to 1.26 per U.S. dollar, or 79.37 U.S. cents, in three months, compared with a 1.27 forecast in February's poll. It was then expected to advance to 1.25 in one year.

The loonie has rallied about 16% since last March, helped by declines for the safe-haven U.S. dollar. Last Thursday, it touched a three-year high at 1.2464 but has since been buffeted by global market volatility as bond yields surged.

For some analysts, the loonie's move higher was too far, too fast. That could leave it vulnerable to a pullback in the near term even if the longer-term outlook remains bright.

"While we maintain our cautiously bullish view on the Canadian dollar over the coming twelve months, headwinds to this view over the next quarter are plentiful," analysts at Monex Europe and Monex Canada, including Simon Harvey, said in a note.

Potential headwinds include an earlier timeline for OPEC to raise output, the analysts said.

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

(Reporting by Fergal Smith; polling by Swathi Nair and Nagamani Lingappa; editing by Larry King)