Canadian dollar seen rangebound as domestic economy recovers: Reuters poll

TORONTO, Aug 6 (Reuters) - Canada's dollar will enter a holding pattern in coming months before notching moderate gains in a year as recent ‌signs of domestic economic recovery support the currency, a Reuters poll showed.

The median ‌forecast of 34 foreign exchange analysts in a July 31 to August 5 poll expected the Canadian dollar ​to be barely changed at 1.40 per U.S. dollar, or 71.43 U.S. cents, in three months, matching the forecast in a survey last month.

In 12 months, the Canadian currency was expected to strengthen 2.6% to 1.366, compared with 1.36 in the previous forecast.

"We expect USD-CAD to ‌remain very rangebound as trading activity ⁠over the summer months tends to die down," said Sarah Ying, head of foreign exchange strategy at CIBC Capital Markets. "As well, a lot of ⁠the big catalysts that drove the currency market to move have since faded away."

Some of those catalysts include AI-related enthusiasm as well as the market's sensitivity to the Middle East war ​and U.S. ​tariffs, while the gap in economic performance between ​Canada and the United States has ‌started to close, Ying said.

Canada's economy grew 3.4% in the second quarter, marking its best quarterly performance in over three years.

Still, speculators have raised their bearish bets on the Canadian dollar to the highest level among major currencies. Much of the short-position building came in advance of the U.S. announcing last month 50% tariffs on a wide range of ‌Canadian goods.

Interest rate differentials have become another significant ​driver of the Canadian dollar, said Howard Du, a ​currency strategist at TD Securities.

"As it ​currently stands, the market continues to expect an imminent Fed rate hike ‌potentially at the upcoming September meeting, while ​the BoC can afford ​to stay more patient," Du said.

Investors expect the Bank of Canada to leave its benchmark interest rate on hold at 2.25% in the coming months but ​have priced in close to ‌three hikes by the end of 2027, swap market data shows.

(Other stories from ​the August Reuters foreign exchange poll)

(Reporting by Fergal Smith; additional polling by Indradip ​Ghosh and Nushaiba IqbalEditing by Tomasz Janowski)