The Canadian dollar is expected to remain weak in the near term as diverging monetary policy between the United States and Canada, along with ongoing trade tensions, weigh on the loonie, according to a forecast from CIBC Capital Markets.
CIBC projects that the U.S. dollar will continue to strengthen against the Canadian dollar, with the USD/CAD exchange rate expected to average 1.42 in the fourth quarter of 2026. The bank’s outlook is based on expectations that the Federal Reserve will continue tightening monetary policy while the Bank of Canada holds its rates steady.
Diverging Rate Paths
According to CIBC, the Bank of Canada is not expected to follow market pricing that anticipates a rate hike later this year. The bank noted that while higher oil prices could push Canadian headline inflation upward, that effect is expected to be offset by economic slack resulting from trade tensions with the United States.
CIBC also forecasts that Canada’s unemployment rate will rise to 6.6% in the fourth quarter, reflecting the broader strain trade friction is expected to place on the domestic economy.
A Brighter Outlook for 2027
CIBC’s forecast points to improvement in 2027. The bank anticipates that negotiations between Canada and the United States will lead to a rollback of Section 338 tariffs and result in a broader trade agreement. Such a development, CIBC said, could support Canadian economic growth and give the Bank of Canada room to raise interest rates as early as next year.
Under this scenario, CIBC expects USD/CAD to fall to 1.37 by mid-2027. The bank’s broader currency forecast has USD/CAD easing further to 1.39 in the first quarter of 2027 and to 1.35 by the fourth quarter of 2027, reflecting an expected gradual strengthening of the Canadian dollar as trade conditions improve.
CIBC’s projections illustrate a currency path shaped largely by the pace of trade negotiations and the relative timing of central bank policy moves in Canada and the United States over the next two years.
This article is for informational purposes only and does not constitute financial, investment, or legal advice. Consult a licensed financial advisor before making investment decisions.
This article references reporting from:
