TORONTO, Oct 6 (Reuters) – The Canadian dollar is expected to fall below September’s forecast for the year ahead following steep losses in recent weeks and as interest rate hikes by the Bank of Canada Canada threaten to plunge the national economy into recession, a Reuters poll has shown.

The currency has weakened around 7% against the US dollar since the start of 2022, but has fared better than other G10 currencies except the Swiss franc, although most of this decline has occurred since mid-August.

Last Friday, it touched its lowest level in more than two years at 1.3838 to the US dollar, or 72.26 US cents.

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“The CAD will still face some challenges heading into year-end and early 2023 as BoC rate hikes are expected to lead to a mild recession in the second and third quarters of 2023,” said George Davis, chief technical strategist at RBC Capital Markets.

To fight inflation, Canada’s central bank has raised interest rates by 300 basis points since March to 3.25%, a 14-year high. He says he can slow growth without dragging down the economy.

The median forecast from currency analysts was for the Canadian dollar to strengthen 1.6% to 1.34 per US dollar in three months, compared to the September forecast of 1.30.

It was then expected to rise to 1.30 within a year. The same forecast in last month’s poll was 1.25.

Canada is a major producer of commodities, including oil which rebounded this week as OPEC+ agreed to its biggest production cuts since the COVID pandemic.

But the prospect of further gains for crude could hinge on whether or not the Federal Reserve continues with its current policy of aggressive tightening.

“As we see more and more concerns about global growth come to light and it becomes clear that the Fed is not going to pivot, I think we could see speculators pushing oil lower,” said Christian Lawrence, senior multi-asset strategist at Rabobank.

Money markets are betting that the Fed will end its tightening cycle with a higher policy rate than the Bank of Canada, an outcome that could cause more problems for the loonie.

“The Canadian economy is more interest rate sensitive than the US economy,” Lawrence said. “I think the Bank of Canada stops climbing before the Fed.”

(For more stories from the October Reuters Forex Poll:)

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Reporting by Fergal Smith; Poll by Prerana Bhat, Vijayalakshmi Srinivasan and Maneesh Kumar. Editing by Jane Merriman

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