The loonie is then expected to rebound to 1.3050 in 12 months, but that is weaker than the 1.2946 median projection in August's survey. The less bullish outlook for the loonie comes as the Bank of Canada faces increased pressure from a weakening global economy to follow the path of global peers, such as the US Federal Reserve, in cutting interest rates.
On Wednesday, Canada's central bank left its benchmark interest rate on hold at 1.75% and made no mention of future cuts. Still, it said the escalating US-China trade dispute was doing more damage to the world economy than it had previously forecast. A Reuters poll from before the interest rate decision showed economists were almost evenly divided on whether the Bank of Canada will wait until early 2020 to lower interest rates or does so this year.
"We expect a faster pace of loosening in Canada than priced into markets, with investors coming round to our view after the (central) bank's October meeting," said Stephen Brown, senior Canada economist at Capital Economics. Money markets see about a 50% chance of a rate cut at the Oct. 30 announcement. A Canadian federal election is due to take place before that date.
"We are also wary that slowing global GDP and a further escalation of the US-China trade war will cause investors to sell the loonie, which tends to be one of the most sensitive currencies to changes in global trade," Brown said. Canada exports a lot of commodities, including oil. Data on Wednesday showed Canada posted a wider-than-expected trade deficit in July as imports rose and exports declined, a sign that a boost to the domestic economy from trade in the second quarter may not be repeated.