Canadian Dollar: Loonie constrained near term – NBC

FXStreet Insights Team FXStreet

National Bank of Canada ’s (NBC) Stéfane Marion and Kyle Dahms describe the Canadian Dollar (CAD) as caught between improving domestic growth and a still-challenging external backdrop. USD/CAD recently rose above 1.42, with forecasts easing to 1.33 by Q2 2027. Lower Canadian inflation, weaker Gold and Oil, and lingering Canada-United States-Mexico Agreement (CUSMA) uncertainty cap near-term CAD upside, though pro-growth policy and trade clarity could support a stronger loonie in 2027.

Growth rebound but limited FX support

"Recession fears in Canada have abated, but the loonie still lacks near-term cyclical support. A projected Q2 rebound in GDP and resilient full-time employment are encouraging, yet lower gold and oil prices, subdued Canadian inflation and unresolved CUSMA uncertainty continue to restrain CAD upside. Still, sticky U.S. inflation and re-emerging supply-chain pressures give Washington an incentive to restore greater certainty around North American trade before the mid-term elections, reinforcing our view that a resolution can be reached by year-end."

"Combined with Ottawa’s most pro-growth policy agenda in more than a decade, this could help revive investment and set the stage for a stronger loonie in 2027."

"The Canadian dollar remains caught between improving domestic data and an external environment offering limited support. USD/CAD rose above 1.42 in June for the first time since spring 2025, when Washington unveiled sweeping tariffs on its trading partners."

"These developments improve the medium-term story for Canada. That said, the near-term cyclical backdrop for the loonie remains less supportive. Core inflation is markedly lower in Canada than in the U.S., reducing the likelihood that the Bank of Canada will follow the Fed in adopting a more restrictive policy bias."

"A meaningful appreciation phase will likely require some combination of a more dovish Fed repricing, stabilization in gold and oil, stronger Canadian growth, and greater clarity on the future of CUSMA. We still expect these conditions to fall into place by the end of 2026, setting the stage for a stronger loonie in 2027."

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

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD consolidates above 0.6950 amid risk aversion

AUD/USD consolidates in the Asian session on Thursday, trading just above 0.6950 as traders assess developments in the Middle East crisis. The Pentagon reportedly ordered readiness for potential strikes against Iran. This keeps the geopolitical risk premium in play, which, along with hawkish FOMC Minutes and elevated US bond yields, will likely keep the US Dollar underpinned at the expense of the pair.

USD/JPY slips below 158.00 as USD retreats

USD/JPY returns to the red below 158.00 in the Asian session on Thursday amid speculation that authorities will step in to prop up the Japanese Yen. Meanwhile, the US Dollar eases from near an 18-month high on profit taking, ignoring Wednesday's hawkish FOMC Minutes and the risk of a further escalation of tensions in the Middle East, adding to the pair's pullback.

Gold clings to daily gains; still below $4,150

Gold regains some composure and climbs back to the vicinity $4,150 mark per troy ounce amid decent gains on Thursday. The yellow metal’s recovery follows some loss of momentum in the US Dollar strength and a decent drop in US Treasury yields across the curve.

Crypto Today: Bitcoin, Ethereum, XRP extend sell-off amid ETF outflows

Bitcoin (BTC) extends its decline below $83,000 on Thursday as heightened selling pressure weighs on the market. Leading altcoins, including Ethereum (ETH) and Ripple (XRP), mirror the sector-wide pullback, with ETH dipping under $2,600 and XRP challenging support at $1.40.

ECB expected to pause in October before hiking rates in December – Reuters poll

The European Central Bank (ECB) is expected to leave interest rates unchanged in October before delivering another increase in December, according to a Reuters poll conducted October 5-8. The survey shows that 70 of 73 economists expect the ECB to hold its deposit rate at 2.50% on October 29, while 64 of 73 anticipate a 25-basis-point (bps) hike in December.

The UK 30-year gilt just hit a 1998 high. Is that good or bad for the British Pound?

The yield on the UK's 30-year government bond, or gilt, went through 6% on October 1 for the first time since early 1998, and on Monday the Pound was at its strongest against the Euro since June 2025. The gilt market's 28-year high is mostly someone else's. Since early May, the 30-year gilt yield has risen about 0.15 of a percentage point and the US 30-year about 0.7.