MARKET NEWS

By Fergal Smith

TORONTO, Feb 6 (Reuters) - The Canadian dollar is set to edge lower over the coming months as the threat of U.S. trade tariffs remains in place despite an early reprieve, but the currency is expected to recover and trade at a higher level in one year, a Reuters poll found.

U.S. President Donald Trump suspended his threat of 25% tariffs on Mexico and Canada on Monday, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighboring countries.
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Since the beginning of October, the loonie has already weakened about 5%, hurt by trade uncertainty as well as a growing gap between U.S. and Canadian interest rates.

With the BoC cutting rates faster than the U.S. Federal Reserve, the Canadian 2-year note yield has fallen about 160 basis points below its U.S. counterpart, the largest gap since September 1997.

The median forecast of 35 foreign exchange analysts in the February 3-5 poll predicted the loonie would weaken 0.6% to 1.44 per U.S. dollar, or 69.44 U.S. cents, in three months, compared to the 1.43 level expected in a poll last month.