Given the combination of further rate cuts, a still-weak real economy, risks from US tariffs and a strong US Dollar (USD), expect the Canadian Dollar (CAD) to continue to struggle for several months, Commerzbank’s FX Analyst Michael Pfister notes.
BoC is expected to end the cut cycle for the time being
“In the meantime, we are even trading slightly above our expected peak of 1.41 in the first quarter of 2025 with USD/CAD at 1.42. The market has probably overplayed the strength of the US dollar, which could lead to a small correction in the coming weeks.”
“From the second quarter onwards, however, we expect a sustained appreciation of the CAD. This is supported by the fact that the real economy is expected to pick up again (possibly even catching up with US growth), the BoC is expected to end the cycle of interest rate cuts for the time being and inflation is expected to remain within reasonable limits. In relative terms, the CAD should then be able to recoup its losses this year as other central banks struggle with much weaker growth and more stubborn inflation.”
“We also expect oil prices to rise again. Our experts believe that the market is a little too optimistic about the supply outlook. This would be positive for Canada as one of the larger oil exporters. If a deal is reached in early summer to resolve the US tariff issue for the time being, and we see the correction in the US dollar that we expect, the CAD should recover against the USD. We therefore expect the CAD to strengthen significantly from the second quarter onwards and forecast a USD-CAD level of 1.35 by the end of 2025, seven cents below the current level. In 2026, we see only limited further upside potential.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD extends slump below 1.0500 after US PMI data
EUR/USD is under renewed selling pressure below the 1.0500 mark. EU PMI data came in better than expected but still indicate contraction in the Union. United States PMIs show a steeper contraction in the manufacturing sector yet upbeat services output in December.
Gold hovers around $2,650 as markets gear up for Fed
Gold opens the week on a moderately positive tone and trades above $2,650, favored by a mild US Dollar (USD) reversal amid lower US Treasury yields. The precious metal, however, is still close to recent lows following a 2.5% sell-off late last week.
Bitcoin rises to new all-time of $106,600, then corrects as markets focus on Fed
Bitcoin price retreats on Monday after reaching a new all-time high (ATH) of $106,648 in the early Asian session. The main factor impacting BTC price this week is likely to be the decision of the US Fed on interest rates on Wednesday.
Five fundamentals for the week: Fed dominates the last full and busy trading week of the year Premium
Christmas is coming – but there's a high likelihood of wild price action before the holiday season begins. Central banks take center stage, and there is enough data to keep traders busy outside these critical decisions.
Five fundamentals for the week: Fed dominates the last full and busy trading week of the year Premium
Christmas is coming – but there's a high likelihood of wild price action before the holiday season begins. Central banks take center stage, and there is enough data to keep traders busy outside these critical decisions.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.