Canada Dollar Faces Limited Upside Amid Trade Talks Uncertainty

Canada's dollar is facing limited upside in the near term due to two key factors, according to strategists at National Bank of Canada. The Canadian economy has shown signs of improvement, with steady growth and higher oil prices contributing to a trade surplus.

However, the bank notes that the US-Canada trade talks are set to be reviewed in July, which could add uncertainty to the market. This is particularly relevant given the gap between Bank of Canada and Federal Reserve policy rates, which tends to favor the US dollar when the rate difference is wide.

The bank predicts that USD/CAD will ease from 1.39 on Monday to 1.33 by spring 2027, pending a clearer outcome from the trade talks or signs that the interest-rate gap between Canada and the US is narrowing.