By Fergal Smith

TORONTO (Reuters) – The Canadian dollar will strengthen less than previously expected in the coming year if the Bank of Canada starts cutting interest rates ahead of the Federal Reserve and the U.S. election increases global trade uncertainty, a Reuters poll showed.

According to the median forecast of 40 currency analysts in the May 31-June 4 survey, the exchange rate in three months will see little change at 1.37 per dollar, or 73.17 U.S. cents, compared with 1.36 in the previous survey month.

It was then forecast that within a year it would escalate by 2.5% to 1.33 compared to the previously expected 1.32.

Canada’s central bank will cut interest rates to 4.75% on Wednesday, three-quarters of economists said in a separate Reuters poll that showed three more cuts this year.

Money markets expect the BoC to ease monetary policy by 65 basis points this year compared to 45 basis points from the Fed.

“At this point, you’re just too far away from Fed cuts when the Bank of Canada cuts are more imminent,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets.

“While some of this rate differential is factored into the price, it is likely to widen somewhat, which will not be positive for the Canadian dollar in the near future.”

Canada’s central bank would be willing to cut interest rates three times before the Fed’s first move, before a falling currency threatens the inflation outlook, a recent analyst survey showed.

Analysts say November’s U.S. elections could be an additional drag on the Canadian dollar if they lead to tariff increases that reduce the outlook for global trade.

Canada is a major producer of goods and sends approximately 75% of its exports to the United States.

“That’s all the more reason to be cautious in your views,” Reitzes said.

(For other articles from the June Reuters currency survey:)