National Bank of Canada says the Canadian dollar rallied in Q3 after rebounding from a 19‑month low at end‑June, when USD/CAD was near 1.42. Stronger domestic data, firmer oil and gold prices and earlier hopes of easing trade frictions helped drive the pair to 1.377 on 21 August, before Ottawa–Washington negotiations faltered. USD/CAD has since moved back above 1.38, but the loonie remains up about 2.5% quarter to date versus the US dollar.
The bank points to renewed tensions in the Strait of Hormuz in August, which have pushed market‑implied odds of a return to normal by year‑end below 30% from more than 50%, keeping a geopolitical risk premium in oil and gold that supports CAD. It also flags fresh US tariffs and wider trade uncertainty as downside risks to Canadian growth, arguing for caution on further tightening. Its forecast sees USD/CAD rebounding towards 1.40 in the coming weeks, then falling again towards 1.33 by 2027.
Short-Term Trading Strategy Amid Heightened Trade Tensions
We suggest that derivative traders prepare for a short-term rise in the USD/CAD pair toward the 1.40 level in the coming weeks. The Canadian Dollar’s recent rally has paused due to renewed trade tensions and tariff risks, making short-term USD call options an attractive play. This temporary weakness presents a prime entry point to buy the greenback before it retreats from its current level of around 1.38.
Commodity Price Support And Long-Term Outlook
Our view is supported by commodity markets, where gold has sustained historic highs above $2,500 an ounce and Brent crude remains highly sensitive to global supply risks. Historically, strong gold and energy exports provide a solid floor for the Canadian economy, which will limit how far the Loonie can fall. We recommend keeping a close eye on these commodity prices as they will eventually help steer the Canadian currency back on a stronger path.
Once the USD/CAD pair pushes close to the 1.40 mark, we advise traders to lock in profits and transition to long-dated CAD call options. We expect the exchange rate to reverse course and slide toward 1.33 by 2027 as trade negotiations eventually settle. Entering bearish USD/CAD put spreads near the 1.40 ceiling will allow traders to maximize returns on this projected long-term decline.
