CAD's Limited Upside Against USD Hinges on Rate Spreads

According to Scotiabank strategists Shaun Osborne and Eric Theoret, the Canadian Dollar (CAD) is facing limited upside against the US Dollar. They note that USD/CAD is trading near fair value around 1.4115, with the CAD constrained by wide short-term rate differentials versus the Dollar.

The strategists also mention that softer oil prices are a mild drag on the Canadian currency. While a Fed hold could allow some CAD gains, they do not expect meaningful improvement until rate spreads narrow later in 2026.

Osborne and Theoret emphasize that wide rate differentials are the main constraint on the CAD's performance. They estimate that spot is trading right about where it should be, with an equilibrium estimate of 1.4086.