Canadian dollar forecasts grow more bullish on trade pact hopes

The Canadian dollar is expected to strengthen more than previously expected over the coming year if the Federal Reserve continues to cut interest rates and the review of a continental trade pact reduces economic uncertainty, a Reuters poll found.

The median forecast of 38 foreign exchange analysts in the Jan. 5 to 7 poll predicted the Canadian dollar would edge 0.5 per cent higher to 1.38 per U.S. dollar, or 72.46 U.S. cents, in three months, compared to 1.39 expected in a survey last month.

In 12 months, the currency was forecast to gain 2.7% to 1.35, versus 1.36 expected previously.

“We expect USD-CAD to weaken from the Fed easing interest rates, risk-on sentiment, broad USD weakness and the resolution of USMCA uncertainty by the middle of the year encouraging investors to become more optimistic on the Canadian dollar,” said Jayati Bharadwaj, a global FX strategist at TD Securities.

The United States-Mexico-Canada Agreement, which has shielded much of Canada’s exports from U.S. tariffs, is up for joint review in 2026.

Some investors worry that a boost in Venezuelan oil exports to the United States could hurt Canadian companies that sell a similar heavy oil and weaken Canada’s hand in trade negotiations.

Canadian Prime Minister Mark Carney has said that Canadian crude is low risk and will stay competitive even if output in Venezuela rises, while he has committed to spending billions of dollars on infrastructure and measures to raise productivity in a possible boost for Canada’s economy.

The Bank of Canada, unlike the Fed, has signaled a possible end to its easing campaign after lowering the benchmark interest rate to a three-year low of 2.25%. Investors see a roughly 50 per cent chance the central bank begins tightening by the end of 2026.

(Reporting by Fergal Smith; Polling by Indradip Ghosh and Renusri K; Editing by Emelia Sithole-Matarise)