Canadian Dollar: Gradual uptrend against US Dollar through 2026

Canadian Dollar: Gradual uptrend against US Dollar through 2026 - TD Securities

USD/CAD Year-End Forecast

1.34

Expected USD/CAD exchange rate by late 2026.

Worst Case Scenario USD/CAD Level

1.40

Projected USD/CAD level if USMCA is eliminated.

Fed Easing Timeline

2027

Expected year for Federal Reserve policy transition toward easing.

§ 01 Executive Snapshot

What: TD Securities forecasts a gradual uptrend of the Canadian Dollar (CAD) against the US Dollar (USD) through 2026.
Who: TD Securities strategists and the Bank of Canada (BoC).
Why it matters: The outlook indicates a potential shift in currency dynamics influenced by Fed policy and Canadian economic conditions.

TD Securities maintains a structurally bearish view on the USD, expecting a transition to Fed easing in 2027.
The forecast predicts USD/CAD drifting toward 1.34 by late 2026, supported by improving Canadian terms of trade.
In a worst-case scenario where USMCA is eliminated, USD/CAD could breach and remain above 1.40.

The Canadian economy is expected to benefit from stronger terms of trade and fiscal easing, which helps stabilize the domestic backdrop.
Historical trends show that geopolitical risks significantly impact currency valuations, with the current environment suggesting a reduction in USD support.

Immediate implications may include a shift in trading strategies favoring CAD, as dollar weakness could enhance Canadian exports.
Long-term operational implications suggest that sustained CAD strength could influence foreign investment flows and economic stability in Canada.

Potential risk includes regulatory changes in trade agreements like USMCA that could lead to immediate CAD depreciation.
Competition from other G10 currencies may also impact CAD's performance against the USD, particularly if geopolitical tensions escalate.

Key milestones include Federal Reserve policy decisions in 2026 and any developments regarding the USMCA trade agreement.
Future developments signaling success or failure of CAD's strength will include economic performance metrics from Canada and the US, particularly in trade balances and inflation rates.

§ 07

What is the forecast for the Canadian Dollar against the US Dollar?

TD Securities forecasts a gradual uptrend of the Canadian Dollar (CAD) against the US Dollar (USD) through 2026.

Why is the outlook for the Canadian Dollar important?

The outlook indicates a potential shift in currency dynamics influenced by Fed policy and Canadian economic conditions.

How could the elimination of the USMCA affect the CAD?

In a worst-case scenario where USMCA is eliminated, USD/CAD could breach and remain above 1.40.

What factors are expected to support the Canadian economy?

The Canadian economy is expected to benefit from stronger terms of trade and fiscal easing, which helps stabilize the domestic backdrop.