Canadian dollar to strengthen; analysts see 'systemic weakness' for USD through 2025
ATB Capital Markets head of currencies Bill Kellett says the story remains one of U.S. dollar weakness, rather than loonie strength. He expects both currencies will underperform through the remainder of the year, with the American dollar falling harder than Canada's currency.
'USD weakness will likely outpace CAD weakness, setting up for a move lower in USD/CAD,' he wrote in a research report on Monday. 'We anticipate USD/CAD will drift moderately lower over the second half of 2025, edging down to the low 1.3000's.'
The Canadian dollar (CADUSD=X) eased slightly against its U.S. counterpart on Tuesday, trading at US$0.7287.
U.S. President Donald Trump's chaotic trade agenda continues to stoke fears of rising inflation and softer growth among global investors. Uncertainty linked to Trump's unpredictable bursts of tariffs against major economies has raised questions about the stability of the U.S. dollar and its role as the global reserve currency.
'While dramatic capital rotation out of the U.S. is not a sustainable reality, the USD is showing signs of longer-term systemic weakness,' Kellett wrote. 'We expect the theme of USD weakness will continue through the balance of 2025, and this variable will be the main overarching factor impacting FX markets.'
CIBC economists Avery Shenfeld and Katherine Judge agree.
'The Canadian dollar has remained on a strengthening trajectory recently, but that continues to be a reflection of the broad USD falling out of favour with investors, rather than a case of strong Canadian fundamentals,' they wrote in the bank's July foreign exchange report.
'Markets are pricing in a slightly more modest dose of easing from the Bank of Canada than we expect, and look to be too optimistic on Fed cuts,' they added.
'That leans towards pressure on the loonie in the near term, but progress on trade negotiations over the next few months could be an offset, leaving USDCAD relatively stable at 1.37 into the end of Q3.'
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on X @jefflagerquist.
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