CAD: A few more months until the turnaround – Commerzbank

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.”