Canadian dollar to rally in 2023 if uncertainty clears

TORONTO: Canada’s dollar will rally this year, but much of the upswing will have to wait until a period of uncertainty passes for the domestic and global economies following aggressive tightening by central banks in 2022, a Reuters poll forecast.

The loonie will edge 0.6 per cent higher to 1.35 per US dollar, or 74.07 US cents, in three months, according to the median forecast of currency analysts.

That matches December’s forecast. It was then expected to strengthen to 1.30 in a year, which is a gain of 4.5 per cent.

In 2022, the loonie weakened 6.8 per cent, its first decline since 2018.

“We expect to see some mild CAD weakness in the first half of 2023 ... as last year’s rate hikes work their way through the economy and lead to a mild recession,” said George Davis, chief technical strategist at RBC Capital Markets.

At 4.25 per cent, the Bank of Canada’s benchmark rate is at its highest since 2008.

Money markets see a 60 per cent chance the central bank would hike by a quarter-percentage-point when it next meets to set policy on January 25 and anticipate the policy rate will peak at about 4.60 per cent in April.