USD/CAD: Sideways range with tariff risks – Rabobank

Rabobank’s Molly Schwartz and Christian Lawrence expect USD/CAD to trade broadly sideways through 2026 as US‑Canada trade tensions and USMCA review risks offset a weaker Dollar. They see the pair constrained in a 1.36–1.41 band, with a narrower US‑Canada rate differential and rising implied volatility, but still view the Canadian Dollar as the lowest‑volatility G10 USD cross.

Range-bound outlook under trade uncertainty

"USD/CAD has been trading mostly sideways in February thus far, even as US-Canada headlines dominate the newsfeed on an almost daily basis. We see 2026 fraught with geopolitical tension and trade uncertainty, but see CAD balanced out by a weaker USD. We foresee further sideways trading for USD/CAD in the year ahead, bounded by 1.36-1.41, though it will be a bumpy ride, especially leading into the USMCA review."

"We expect USD/CAD to remain range-bound between 1.37-1.40 as competing pressures balance out. The continued "tariff premium" will contirbute to a weaker CAD, but the narrowing US-CA rate differential subdues USD strength."

"USD/CAD has started to move in correlation with our selected assets again, aligning with the US-CA 2 year rate differential as well as having an inverse relationship with oil. The latter being a reflection of our well flagged view that oil prices are only a key driver of CAD during periods when oil prices move sharply and quickly. However, given the heightened uncertainty surrounding US relations and trade, we would caution getting too comfortable with these re-emerging relationships."

"We are not anticipating a swift return to the low volatility environment of December 2025. Rather we expect the opposite. While vols have cooled from recent highs driven by arctic anxieties, we expect the US-Canada relationship to grow increasingly unstable, especially as we approach the official USMCA review on July 1—four and a half months away."

"We see USD/CAD continuing to trade sideways in the range 1.36-1.41 in the year ahead, as USD/CAD is yanked up and down by US-Canadian tensions, non-coincident rate paths, and sticky trade uncertainty."

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