TD Securities analysts report that the Canadian Dollar (CAD) is expected to experience a broadly neutral near-term impact following a more balanced tone from the Bank of Canada (BoC) [1]. With USD/CAD trading near pre-conflict levels, the analysts anticipate the currency pair will fluctuate around current levels through the second quarter of 2026 before gradually trending lower toward 1.34 by year-end, reflecting their bearish outlook on the US Dollar (USD) [1].
The analysts note that risks to Canada's economic outlook are now more balanced, which allows the BoC to maintain a cautiously neutral stance without signaling imminent policy action. This shift to a more neutral tone, compared to the previously dovish communication from the BoC earlier in the year, is expected to have a muted effect on the CAD in the near term [1].
TD Securities highlights that the market has largely moved past the peak of geopolitical shock and uncertainty premiums, contributing to the current stability in USD/CAD levels. Looking ahead, they maintain a bearish view on the USD for 2026 and project USD/CAD to decline to 1.34 by the end of the year [1].
Additionally, the analysts identify the United States-Mexico-Canada Agreement (USMCA) as an asymmetric risk for USD/CAD. They suggest that a deal in place would likely boost CAD sentiment and positioning more significantly than the absence of a deal. However, they expect USMCA-compliant goods to remain exempt from tariffs regardless of the agreement's status [1].
CONCLUSION
TD Securities expects USD/CAD to remain rangebound in the near term, with a gradual move lower toward 1.34 by year-end as the bearish USD view unfolds. The BoC's more balanced tone is seen as having a limited immediate impact on the CAD, while USMCA developments could provide additional upside for the Canadian Dollar.