Title: USD/CAD 2025 Forecast: Analysts See Trade Risks as Underappreciated, Targeting 1.40
By Tim Clayton, originally published at ExchangeRates.org.uk
The USD/CAD exchange rate has drawn notable attention from analysts and investors alike, as the dynamics between the US and Canadian economies continue to shape the currency pair’s future. According to an in-depth analysis by Tim Clayton at ExchangeRates.org.uk, the outlook for USD/CAD shows the potential for significant movement over the next year. With evolving economic conditions and trade risks influencing currency valuation, there is a growing sentiment that investors may be underestimating the volatility ahead. Market strategists are now projecting a possible rise in the USD/CAD pair to as high as 1.40 by mid-to-late 2025.
This report summarizes Clayton’s key arguments, adds supplemental context where needed, and organizes the discussion to highlight the various risk factors and forecasts impacting the USD/CAD exchange rate through 2025.
Overview of Current USD/CAD Position
As of late July 2025, the USD/CAD currency pair stands in the 1.34 to 1.35 range, showing general stability over recent months.
Key background developments include:
– A relatively stable Canadian dollar, supported by steady oil prices.
– The US dollar’s strength, underpinned by high interest rates and a resilient labor market.
– Market expectations for slower rate cuts by the Federal Reserve, boosting the greenback.
While current levels suggest moderate equilibrium between the two North American economies, many analysts argue that market participants are underpricing upcoming trade risks that could disrupt this balance and push USD/CAD higher.
The Case for a 1.40 USD/CAD Exchange Rate
Clayton highlights that the team at Scotiabank sees room for further appreciation in the USD/CAD rate. Strategists at the bank warn that current pricing may not reflect the full spectrum of economic and geopolitical issues that could pressure the loonie (CAD) in the months ahead.
Scotiabank’s outlook includes the following points:
– A baseline target for USD/CAD of approximately 1.37.
– A bullish forecast stretching up to 1.40 if risk aversion rises.
– A view that the balance of risks favors a weaker Canadian dollar in the medium term.
Those forecasts are driven by a combination of economic, monetary, and global trade factors, which could increasingly weigh on CAD.
Factors Driving Bullish USD/CAD Position
1. Diverging Monetary Policy Paths:
The Federal Reserve and the Bank of Canada (BoC) may be heading down slightly different monetary policy trajectories.
– The Fed has struck a hawkish tone in response to persistent inflationary pressures in the services sector.
– Canadian inflation, although gradually declining, may allow for slightly earlier rate cuts by the BoC.
– A divergence in central bank policies typically favors the currency backed by tighter rates, currently the US dollar.
2. Slower Chinese Growth and Trade Exposure:
Canada’s economy is highly dependent on global trade, particularly with China and the broader Asia-Pacific region.
– Weaker Chinese demand affects Canadian exports such as oil and metals.
– Slowing demand from Asia can reduce resource prices, challenging Canada’s terms of trade.
– The US economy is more domestically driven, giving the USD some insulation from external trade shocks.
3. Commodity Price Volatility:
While oil prices have remained reasonably supportive for the loonie, energy markets continue to show signs of fragility.
– WTI crude oil prices are hovering near $80 per barrel, but demand concerns persist.
– If global growth decelerates, oil prices could drop, hitting Canada’s energy sector hard.
– Lower oil prices reduce Canada’s trade surplus and weaken the demand for CAD.
4. Rising Global Risk Aversion:
Clayton points out that global financial markets may face more volatility in the second half of 2025, especially during election periods, rising tensions in the South China
Read more on EUR/USD trading.