Economists are less bullish on the Canadian dollar now that China's economy is slowing and the spread between U.S. and Canadian bond yields widens.
The latest poll from the Reuters News Agency has found that economists and currency traders are ratcheting down their forecasts for the loonie, though most still expect the currency to be higher in a year from now.
The median forecast of nearly 40 economists, traders, and analysts surveyed was for the Canadian dollar to rise 1.9% to $0.7463 U.S. cents over the next three months, which is lower than a forecast taken in August of this year.
However, most people who were polled still expect the loonie to increase 5.8% over the coming 12 months, unchanged from August.
The main reason for the downward revision in the near-term is that China's economy is slowing as policymakers try to fix a crisis in the country’s property market.
As a major producer and exporter of commodities, the Canadian dollar is sensitive to growth in the global economy, of which China is a main driver.
The Canadian dollar has declined about 4% from a peak reached in July of this year, while the Canadian two-year yield has fallen in recent weeks below its U.S. counterpart.
More recently the spread between the Canadian and U.S. dollar widened to it biggest gap since May of this year after the Bank of Canada left its trendsetting interest rate unchanged at 5%, a 22-year high.
Canada's economy contracted by an annualized 0.2% in the second quarter of this year.
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