On Wednesday, Macquarie analysts provided insight into potential future movements of the Canadian dollar (CAD) against the US dollar (USD).
They indicated that concerns over tough US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s appreciation against EUR, CAD and other currencies may not last beyond the first quarter of the year.
Analysts emphasized that despite the initial threats related to tariffs, Canada is expected to become even closer to the United States in the coming years. This forecast is based on several factors, including Canada’s domestic policies, foreign policy, border and immigration policies, as well as trade and capital flows, all of which point to convergent interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to further cement this relationship.
According to Macquarie, strengthening relations between Canada and the US will lead to a much more stable exchange rate in the future. They anticipate that the USD/CAD pair will experience a downward drift as a result of these events, potentially reaching the annual average target of 1.35.
The stability of the USD/CAD exchange rate is seen as reflecting a “merger trend” context in which the two economies continue to integrate and adapt, leading to lower exchange rate fluctuations. Macquarie’s analysis predicts a calmer period ahead for the currency pair, which has been influenced by trade policy and geopolitical factors in the past.
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