Canadian Dollar Expected to Strengthen as Trade Tensions Ease

A Reuters poll of foreign exchange analysts predicts Canada's dollar will edge lower in coming months before notching moderate gains if trade tensions between Canada and the US resolve. The median forecast is for the Canadian dollar to be 0.4% lower at 1.39 per US dollar, or 71.94 US cents, in three months.

This outlook is based on the assumption that a resolution will be reached in the ongoing trade conflict with the US. Analysts expect domestic macro data to recover once this issue is addressed. The Bank of Canada has stated it does not anticipate the tariffs imposed by the US to have a significant direct impact on the economy.

However, analysts at Monex Europe and Desjardins predict the Canadian dollar will strengthen in the long term due to the narrowing interest rate gap between Canada and the US. Mirza Baig, a foreign exchange strategist at Desjardins, believes the Canadian dollar will reach 1.35 by the end of next year as investment spending accelerates.

Investors expect about 100 basis points in tightening from the Bank of Canada by the end of 2027, which would move the policy rate toward the top of the central bank's estimated range for the neutral interest rate.