Canadian Dollar: Tariffs boost role as funding currency – TD Securities

TD Securities argues Canadian Dollar (CAD) is set to gain prominence as a global carry funding currency, with its carry/vol profile already comparable to Japanese Yen (JPY). They note USD/CAD has rallied to their 1.39 year-end forecast after new United States (US) tariffs and see further upside versus fair value, expecting more bearish catalysts as tariff impacts hit data and markets fade the Bank of Canada's (BoC) recent hawkish narrative.

Tariff shock shifts CAD toward funder

"After the July JPY intervention, the FX market has been gradually turning to the CHF as a new carry funder candidate."

"As we discussed in a recent note, in the case gold price stays supported and the EU-SZ rate differential remains stable, CHF is unlikely to see sustained spot downtrend like the JPY did."

"Instead, we believe the CAD's role as a global carry funding currency could gain more prominence."

"The CAD's carry/vol ratio profile is already comparable to the JPY."

"Following the latest Section 338 tariffs disputes with the US, USD/CAD has rallied to our 2026 year-end forecast of 1.39 but still has more room to rise vs short-term fair value. Unlike the JPY where the upcoming BoJ meeting could serve as a bullish catalyst, the CAD will likely see more bearish catalysts in the near-term as impacts of the latest tariffs shock on sentiment and production feeds into domestic economic data and market fades the hawkish BoC narrative from the September meeting."

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