CIBC Warns of Near-Term Risks for Canada's Loonie Amid Trade Tensions

CIBC Capital Markets is sticking to its view that the Canadian dollar will strengthen in the long term, but warns of potential risks in the near future.

The bank's investment arm cited a softer US dollar as investors reduce expectations for additional Federal Reserve rate hikes. It also expects Canada's interest rates to normalize if inflation continues to cool down, which could lead the Bank of Canada to raise its overnight rate towards CIBC's estimated neutral level of 2.75%.

However, in the next few months, the bank sees 'significant new uncertainties' due to Middle East tensions and potential additional US tariffs on Canadian goods before the August 19 deadline.