Title: USD/CAD Outlook: Gradual Depreciation Expected into 2026, Banks Eye Range-Bound Trading in Near Term
By rewriting and expanding upon Claude Beaulé’s article originally published on MarketScreener
The USD/CAD currency pair, one of the most actively traded pairs reflecting the US dollar’s value against the Canadian dollar, has been navigating a delicate balance of economic data, interest rate expectations, oil prices, and broader macroeconomic sentiments. Several Canadian financial institutions, including CIBC and RBC, have recently released their outlooks suggesting a nuanced trajectory for the USD/CAD exchange rate through the remainder of 2024 and into the coming years, all the way to 2026.
CIBC analysts foresee a gradual decline in the USD/CAD rate toward 1.30 by 2026. In contrast, RBC suggests the pair will remain range-bound in the near term, highlighting key resistance and support levels that traders should note as decision points for future movement.
This article delves deeper into these outlooks and includes insights from other market strategists and economists to present a comprehensive view of future expectations for the USD/CAD pair.
CIBC Forecasts Gradual Strengthening of the Canadian Dollar
Canadian Imperial Bank of Commerce (CIBC Capital Markets) projects a moderate but consistent strengthening of the Canadian dollar against the US dollar over the next two years. Their currency strategists expect that by 2026, the USD/CAD rate will reach approximately 1.30, down from levels hovering near 1.37 in early 2024.
Key drivers behind this forecast include:
– Relative interest rate movements between the US Federal Reserve and the Bank of Canada (BoC)
– Slower US economic growth aligning with eventual rate cuts
– Robust Canadian trade performance, supported in part by energy exports
– Global appetite returning for risk assets, which tends to favor currencies like the CAD
The projected trajectory doesn’t call for sharp correction or dramatic shifts, but indicates that as macroeconomic conditions settle over the next two years and global financial risk-on sentiment grows, USD/CAD will gradually reflect the reversion toward macroeconomic fundamentals.
Canadian energy exports, particularly oil and gas, will be a vital tailwind for the loonie (CAD), especially if oil prices rise amid tightening global supply or increased demand from emerging markets.
RBC Expects Range-Bound Behavior in Near Term
In contrast to CIBC’s longer-term depreciation forecast for USD/CAD, Royal Bank of Canada (RBC) offers shorter-term guidance that emphasizes technical and macroeconomic balance.
RBC sees the USD/CAD pair being “boxed in” between key resistance and support levels in the near-to-medium term, suggesting oscillations between 1.35 and 1.38. The consolidation outlook reflects a market waiting for clearer signals from central banks on interest rate paths and inflation dynamics.
Key technical levels and indicators identified by RBC:
– Resistance near 1.38: RBC analysts identify 1.38 as a crucial technical ceiling. A break above this level may trigger further bullish sentiment for USD/CAD. However, the lack of strong follow-through after recent USD rallies suggests this is likely to hold unless catalyzed by major events.
– Support between 1.3450 and 1.35: RBC regard this as a solid base for the currency pair. Any dip toward this area may see committed buying interest from investors assuming the range will persist.
– Trading ranges may narrow further as summer liquidity tapers: Reduction in market participation during summer months and lack of monetary policy surprises may result in tighter intraday volatility and narrower ranges.
This range-bound view highlights the competing forces at play, including US dollar strength driven by safe haven flows and strong US labor data, versus the underlying resilience in core Canadian economic indicators such as housing and exports.
Interest Rate Trajectories: A Decisive Factor
The policy divergence between the US Federal Reserve and the Bank of Canada underpins both C
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