Key facts
- Canadian dollar forecast to strengthen against the U.S. dollar over the next year.
- Progress in the USMCA review is seen as crucial for sustained loonie strength.
- Analysts expect the Canadian dollar to reach 1.3400 per U.S. dollar in 12 months.
- Canada's economy unexpectedly slipped into a technical recession in the first quarter.
- Lowered expectations for Bank of Canada interest rate hikes are noted.
A Reuters poll of 31 foreign exchange analysts indicates that the Canadian dollar is expected to strengthen against its U.S. counterpart over the coming year. The median forecast suggests the loonie will gain 1.4% to 1.37 per U.S. dollar in three months, and 3.7% to 1.3400 in 12 months. This outlook is contingent on the recovery of the Canadian economy and progress in the review of the United States-Mexico-Canada Agreement (USMCA). Canada's trade minister, Dominic LeBlanc, reported a positive meeting with the U.S. regarding the USMCA review. Analysts note that sustained loonie strength depends on the resolution of these trade talks, with uncertainty and global headlines impacting the currency. Canada's economy unexpectedly entered a technical recession in the first quarter, leading to reduced expectations for Bank of Canada interest rate hikes. Despite the downturn, analysts anticipate stabilization in the second half of the year, driven by the real estate sector, investment climate, and fiscal policy. Prime Minister Mark Carney has prioritized lowering the cost of living, addressing housing shortages, and developing infrastructure to reduce economic dependence on the U.S.