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Canadian Dollar Faces Pullback on Trade Tension Risks Before Resuming Gains, National Bank Says

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The Canadian dollar is expected to resume its upward trend in 2027, with the forecast against the US dollar to fall toward CA$1.33 if Canada-US trade talks ultimately yield a favorable outcome, according to National Bank Capital Markets in a Tuesday note.

The USD/CAD exchange rate is currently around CA$1.38.

In the near term, however, the loonie could retreat toward CA$1.40 as higher US tariffs weigh on Canadian growth and reduce the likelihood of further Bank of Canada rate hikes, wrote the bank in the note.

The Canadian dollar is up about 2.5% so far in the third quarter, buoyed by stronger economic data and elevated oil and gold prices, said National Bank.

Canada's economy staged a strong second-quarter rebound, with gross domestic product rising at a 3.3% annualized pace.

Renewed trade tensions with the US are adding to downside risks. As a consequence, the loonie's outlook will largely depend on how Canada-US trade talks evolve, added the bank.

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