Stéfane Marion and Kyle Dahms of the National Bank of Canada (NBC) describe the Canadian dollar (CAD) as balancing between improving domestic growth and a still challenging external environment. USD/CAD has recently risen above 1.42, with forecasts to fall to 1.33 by the second quarter of 2027. Lower Canadian inflation, weaker gold and crude oil, and the lingering Canada-United States-Mexico Agreement (CUSMA) limit near-term CAD upside, although pro-growth policies and trade transparency could support a stronger frenzy in 2027.
Growth rebounding but narrow currency support
“Recession fears have abated in Canada, but the madman still lacks short-term cyclical support. The projected second-quarter GDP rebound and stable full-time employment are encouraging, although lower gold and oil prices, low Canadian inflation and unresolved CUSMA uncertainty continue to constrain CAD growth. Still, persistent U.S. inflation and re-emerging supply chain pressures provide incentive for Washington to restore greater certainty about to trade in North America ahead of the mid-term elections, reinforcing our view that a resolution can be reached by the end of the year.”
“Coupled with Ottawa’s most pro-growth policy agenda in over a decade, this could help revive investment and set the stage for a stronger 2027 lunatic.”
“The Canadian dollar remains caught between improving domestic data and an external environment offering narrow support. USD/CAD rose above 1.42 in June for the first time since spring 2025, when Washington unveiled sweeping tariffs on its trading partners.”
“These developments improve Canada’s medium-term position. However, the near-term cyclical backdrop for the loonie remains less favorable. Core inflation is much lower in Canada than in the U.S., making it less likely that the Bank of Canada will follow the Fed’s lead and adopt a more restrictive policy stance.”
“A significant phase of appreciation will likely require a combination of a more dovish Fed re-pricing, stabilizing gold and oil, stronger growth in Canada, and greater clarity about the future of CUSMA. We continue to expect these conditions to materialize by the end of 2026, setting the stage for a stronger rally in 2027.”
(This article was created with the aid of an artificial intelligence tool and has been reviewed by an editor. Find out more.)
