Canadian Dollar Faces Pressure near 1.40 against US Dollar – TD Securities

Canadian data continue to warrant patience from the Bank of Canada, according to TD Securities’ FX team, led by Jayati Bharadwaj and Howard Du, leaving interest rate differentials favourable to the US Dollar. The team expects USDCAD to hold above 1.40 in the near term. A backdrop more favourable to CAD is expected in Q1 2027, as BoC tightening gets under way and Canada’s recovery gathers strength.

BoC expectations weigh on CAD

"USD/CAD is likely to stay supported above 1.40 until a broadly bearish USD regime returns. We now look for 25bp hikes in Dec and Jan (prev: Jan and Mar)."

"A BoC hold, in line with our macro call, should disappoint market expectations and weigh on CAD. Even if the BoC were to hike at the October meeting, CAD rates curve pricing-in four BoC rate hikes over the course of a year is still too aggressive and has room to adjust in the dovish direction."

"With rate differentials remaining as the key driver of USD/CAD, we expect the relative-rates backdrop to remain USD-supportive near term, before turning more CAD-friendly in Q1 2027 as BoC tightening gets properly underway and the Canadian recovery gains traction."

"While USD/CAD has retraced from 1.43 due to hawkish BoC guidance amid stretched short CAD positioning, the pair is likely to stay supported above 1.40 in the near-term."

"Sustained USD/CAD downside requires both a more compelling BoC hiking story and the return of a broadly bearish USD regime. We think the latter is more likely after the US midterms, keeping us tactically bullish USD until then. Thereafter, renewed bearish USD impulses should help pull USD/CAD toward our 1.38 year-end target."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)