Title: Outlook for USD/CAD: CIBC Predicts Gradual Decline Through 2026 as RBC Projects Range-bound Movement
Author: [Adapted and Expanded from a Marketscreener article, original author not listed]
The Canadian dollar (CAD) is expected to strengthen gradually against the U.S. dollar (USD) through the coming years, supported by a stable interest rate environment, improving oil prices, and a narrowing of the U.S.-Canada interest rate differential. Analysts from Canadian Imperial Bank of Commerce (CIBC) project a long-term trend that sees USD/CAD heading lower into 2026, while strategists at Royal Bank of Canada (RBC) believe the currency pair will remain range-bound in the near term due to prevailing macroeconomic uncertainties.
This expanded article dives deeper into the forecasts provided by CIBC and RBC, incorporating additional data from the Bank of Canada, the Federal Reserve, and global commodity markets. We examine factors influencing the USD/CAD exchange rate, present key near-term risks, and evaluate technical and fundamental indicators.
CIBC’s USD/CAD Outlook: A Gradual Descent into 2026
In recent analysis, economists at CIBC project the USD/CAD currency pair moving lower over the next two years. The bank cites a combination of macroeconomic and monetary policy factors that will support a stronger Canadian dollar through 2026. Key drivers include:
– A narrowing interest rate differential between the U.S. Federal Reserve and the Bank of Canada (BoC)
– A recovery in global commodity prices, particularly West Texas Intermediate (WTI) crude oil
– Resilient Canadian economic fundamentals, including a robust job market
– Reduced upside pressure on the U.S. dollar as global monetary tightening slows
Here are CIBC’s key arguments in more detail:
1. Interest Rate Differential to Narrow
– The U.S. Federal Reserve led a historic rate-hiking campaign beginning in 2022, leading to an approximately 525 basis points increase in the benchmark federal funds rate.
– In contrast, the Bank of Canada, while also raising rates, implemented a less aggressive tightening cycle.
– CIBC projects the Fed will begin cutting rates late in 2024 or early 2025, narrowing the rate spread between the two countries.
– As the U.S. yield advantage declines, American assets could appear less attractive, prompting investors to rebalance away from the USD.
– A smaller interest rate gap typically supports other currencies like the CAD, which benefits from reduced capital outflows.
2. Energy Prices Expected to Rebound Moderately
– Canada is a major exporter of crude oil and natural gas, and energy represents a significant component of its trade balance.
– WTI crude prices are currently hovering near the $80 per barrel mark.
– CIBC forecasts a moderate but sustained increase in oil prices, citing signs of global supply tightening and improving demand from emerging markets.
– The CAD often moves in tandem with oil prices; higher energy prices provide fundamental support for the loonie.
3. Canadian Economic Outlook Remains Resilient
– The Canadian job market continues to show strength, with the latest unemployment rate around 6.2 percent as of mid-2024.
– While inflation has moderated from its post-pandemic highs, core price pressures remain manageable.
– Consumption metrics including retail sales and housing activity suggest the Canadian economy is avoiding a hard landing following the rate hike cycle.
– CIBC expects the Canadian economy to skirt a deep recession and maintain stable growth around 1 to 1.5 percent annually between 2024 and 2026.
4. Structural Support for Canadian Dollar
– Growing demand for Canadian commodities, including metals and agri-products, will further support balance of payments.
– Canada’s trade partnership and supply-chain integration with the U.S. also insulate the country from large external shocks.
CIBC’s Long-Term USD/CAD Forecast Table (
Read more on USD/CAD trading.