National Bank of Canada economists reported that the Canadian dollar rose at first after WTI reached $100 during the Iran conflict, then weakened. They now project USD\/CAD at 1.41 in Q2 2026, alongside broader falls in major currencies, including a 2.1% drop for the loonie against the US dollar.<\/p>\n
Markets are pricing close to 50 basis points of Bank of Canada tightening this year, but the bank expects those expectations to ease. Canada\u2019s energy trade surplus and fossil-fuel trade balance relative to GDP are described as providing a buffer against a global oil supply shock.<\/p>\n
The economists said this buffer may support the economy in coming months, but not to the point of prompting further Bank of Canada tightening. January GDP rose by +0.1%, while only 9 of 20 sectors recorded monthly output increases.<\/p>\n
They expect further Canadian dollar depreciation through Q2 2026, linked to the prolonged Iran conflict and shifting rate expectations. They still foresee a possible move higher in H2 2026 if Washington\u2013Ottawa trade talks improve and the Canadian government sets out clearer pro-energy and industrial policy support.<\/p>\n
In the coming weeks, we see the Canadian dollar continuing to weaken against the US dollar, with a target of 1.41 for the second quarter. This view is reinforced by market pricing, as Overnight Index Swaps now show less than a 20% probability of a Bank of Canada rate hike by July. Traders could consider positioning for further CAD downside through futures or by purchasing call options on USD\/CAD.<\/p>\n
The rationale for this bearish outlook is the unwinding of rate hike expectations, driven by a mixed domestic economy. While January GDP showed a slight gain, more recent data is less encouraging, with preliminary figures for March retail sales pointing to a 0.5% contraction. This suggests the Bank of Canada will stay on the sidelines, removing a key support for the loonie.<\/p>\n
However, we do not expect a dramatic collapse in the currency as we saw speculators bet on late last year. Looking back at the CFTC data from November 2025, net short positions on the loonie were at a multi-year high, a level we don’t anticipate returning to now. Canada’s strong energy position provides a significant buffer against global shocks.<\/p>\n
This creates an opportunity for derivative traders to manage the timeline of their positions. Given the potential for a rebound in the second half of the year, buying longer-dated put options on USD\/CAD could be a cost-effective way to position for a potential loonie recovery. This strategy would benefit if trade and energy policy news from Ottawa turns positive later in the year.<\/p>\n
Canada\u2019s insulation comes from its massive fossil-fuel trade surplus, which reached over C$125 billion in 2025 and remains robust. While this makes the Canadian economy more resilient than others, it is not enough on its own to reverse the loonie’s current downward trend. Therefore, the path of least resistance for USD\/CAD remains upward for now.<\/p>\n","protected":false},"excerpt":{"rendered":"
NBF sees loonie weakening despite oil spike; forecasts USD\/CAD 1.41 Q2 2026, BoC easing expectations.<\/p>\n","protected":false},"author":103,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-46907","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46907","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=46907"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46907\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=46907"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=46907"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=46907"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}