After weakening on the release of some dismal jobs data last week, the Canadian dollar has regained a bit of strength and is back trading in the familiar 1.375 to 1.38 range. The modest rebound has more to do with broad U.S. dollar weakness than any real surge in Canadian dollar strength.
The U.S. dollar slipped yesterday after July’s CPI — one of the key barometers the Fed uses to gauge inflation — came in cooler than expected. That added to the run of softer economic indicators over the past few weeks, pushing markets to price in an almost certain (98%) 25 basis point Fed rate cut at their next meeting on September 17. Remember, lower interest rates usually mean a weaker currency.
On top of that, political pressure from President Trump and his administration on Fed Chair Powell — along with questions about the independence of U.S. economic data — helped push the greenback lower.
Meanwhile, markets are only pricing in about a 33% chance of a Bank of Canada rate cut in the near term. That’s a sharp contrast to the Fed’s almost-guaranteed move, and it’s one of the reasons USD/CAD hasn’t dropped more aggressively. When the Fed is leaning toward cuts and the BoC is holding steady, the policy gap tends to put downward pressure on USD/CAD — with the Canadian dollar benefiting from relatively stable interest rates.
Adding to the backdrop is Canada’s ongoing trade tension with China. The recent escalation — including steep anti-dumping duties on Canadian canola exports — threatens a multi‑billion‑dollar sector and adds another layer of uncertainty for the Canadian economy. While these headlines haven’t sparked major currency moves in recent days, they could weigh on CAD momentum in the months ahead.
Here’s where things stand: when there’s Canadian-specific news, the loonie tends to react. But when Canada’s out of the spotlight, the USD/CAD pair generally follows the broader U.S. dollar trend.
This is reflected in the outlooks from the big banks. BMO’s latest forecast has USD/CAD hitting 1.35 in Q4 2025 and dropping to 1.33 by Q4 2026. TD Bank also sees a gradual decline, calling for 1.37 in Q4 this year and the same 1.33 by late 2026.
Our take? If you’re buying USD, we like anything in the low 1.37 range. If you’re selling USD, there’s value in the high 1.37 range while it lasts.
The Canadian dollar is currently trading at 1.3771 CAD against the US Dollar.
