Canadian Dollar Hits Highest Levels Since October
The Canadian Dollar (CAD) is continuing its upward momentum, reaching new multi-month highs not seen since early October. According to Shaun Osborne, Chief FX Strategist at Scotiabank, the Canadian currency’s strength is firmly grounded in shifting economic fundamentals and market expectations.
Table of Contents
A Shift in Central Bank Policy Is Powering the CAD Rally
Bank of Canada Moves Toward a Neutral Stance
One of the key factors behind the CAD’s recent surge is a notable change in central bank sentiment. Last week’s policy update from the Bank of Canada (BoC) indicated a reluctant shift toward a more neutral policy stance. This was interpreted by markets as a signal that Canada may not see aggressive rate cuts in the near term—unlike its southern neighbor.
Dovish Signals from the Federal Reserve Weaken the U.S. Dollar
Adding further fuel to the Canadian Dollar’s rally is a softer-than-expected U.S. Consumer Price Index (CPI) report. The decline in inflation has led to a reassessment of the Federal Reserve’s future path, with investors now pricing in a more dovish Fed. This divergence in central bank outlooks has narrowed interest rate differentials, benefiting the CAD.
Oil Prices Add Additional Support to the Canadian Dollar
As a commodity-linked currency, the CAD often moves in tandem with global oil prices. The recent rally in crude oil has added further momentum to the Canadian currency. Stronger energy markets enhance Canada’s terms of trade and boost demand for the CAD, particularly as the country remains a leading exporter of crude.
Technical and Forecast Outlook for USD/CAD
Fair Value Estimate Points Lower for USD/CAD
Scotiabank’s latest valuation model has revised the fair value estimate for the USD/CAD pair to 1.3681, reflecting a more bearish outlook for the U.S. dollar. As market sentiment and fundamentals shift, technical indicators also show downward pressure on the USD/CAD exchange rate.
USD/CAD Forecast Will Canadian Dollar Bulls Trigger a Reversal?
USD/CAD Weakens Further Ahead of Bank of Canada Rate Decision
Bank of Canada Poised for June Rate Cut After April Jobs Shock and Rising Unemployment
Longer-Term Projections Show Continued CAD Strength
Looking ahead, Scotiabank’s forecast update sees further downside for the USD/CAD pair. Analysts project the exchange rate to decline to 1.34 by the end of 2025 and further to 1.28 by the close of 2026. These projections suggest continued strength for the Canadian Dollar over the medium term, driven by a favorable blend of economic policy, commodity trends, and technical momentum.
