Loonie Set for Short-Term Decline, Long-Term Rebound Amid Trade Tensions

The Canadian dollar is expected to weaken in the short term but gain strength over the next year, according to a Reuters poll of foreign exchange analysts. The median forecast was for the loonie to edge 0.4% lower to $1.39 CAD/USD or 71.94 U.S. cents, in three months, compared with a $1.40 forecast last month.

However, in 12 months, the Canadian currency is expected to strengthen by 1.8% to $1.36 CAD/USD, versus the previous forecast of $1.3660. This optimism stems from the expectation that trade tensions between Canada and the U.S. will eventually be resolved with a deal.

According to Nick Rees, head of macro research at Monex Europe, 'trade tensions with the U.S. should eventually be resolved with a deal, regardless of present posturing, allowing domestic macro data to recover.'

Mirza Baig, a foreign exchange strategist at Desjardins, also expects the Canadian dollar to gain strength over the next year, forecasting a modest strengthening to $1.35 CAD/USD by the end of 2027.