As we wrap up the shortened week, I wanted to share some brief thoughts in response to the recent questions we've received regarding currency markets.

Entering the latter part of 2025, the Canadian dollar (CAD) continues to show resilience in a complex economic environment. While it hasn’t made dramatic moves, the loonie has held its ground and is expected to strengthen modestly over the next 6-12 months, according to a recent Reuters poll of 32 FX analysts.

The consensus sees USD/CAD easing to 1.36 in three months (from the current 1.37–1.38 range), and potentially further over the next year. A key reason? Diverging interest rate paths between Canada and the U.S.

The Bank of Canada is nearing the end of its easing cycle, with markets pricing in just two more cuts, bringing the benchmark rate to around 2.5% by year-end. In contrast, the U.S. Federal Reserve is only beginning its rate-cutting journey and is expected to move more aggressively. This could narrow the interest rate gap between the two countries, removing a key support for the U.S. dollar and boosting relative demand for the loonie.

From a trade perspective, tensions have cooled. Despite U.S. tariffs on Canadian goods, most trade remains protected under USMCA. Canada’s rollback of retaliatory tariffs should ease domestic inflation and give the BoC more policy flexibility. However, the upcoming USMCA review could introduce volatility if negotiations around autos or agriculture turn contentious.

Economic fundamentals are mixed. Canada’s Q2 GDP contracted 1.6% (annualized), driven by weaker exports and business investment. But strong consumer spending and a resilient housing market are offsetting some of that softness. If the U.S. economy continues to expand and global demand picks up, Canadian exports, especially energy, could rebound, supporting CAD.

In short, the loonie is grinding forward, not flying high, but certainly not falling at this time. Expect cautious optimism, with upside potential if rate differentials narrow and trade risks remain contained.

In the event you have questions regarding CAD/USD, please don’t hesitate to reach out.