National Bank of Canada says the Canadian dollar has recently been the weakest-performing reserve currency, with USD\/CAD returning to about 1.39, a level last seen at the end of March during the equity sell-off that followed the closure of the Strait of Hormuz. The bank links the move to softer relative real growth and a negative Canada\u2013U.S. 2-year spread, which continues to weigh on the currency even as full-time employment sits at a record high.<\/p>\n
Commodities are also shaping price action. Oil remains relevant for Canada, but the bank argues gold has been the marginal driver in the current set-up; bullion is in a downtrend and is now more than 17% below its recent record high, a dynamic it associates with CAD weakness. Looking ahead, it projects USD\/CAD at 1.35 by year-end, and says any durable CAD recovery would depend on Ottawa securing a trade accord with the US this summer, while geopolitical risks and Canadian firms\u2019 access to the US market remain sources of uncertainty.<\/p>\n
We see the Canadian dollar remaining under pressure in the coming weeks, holding as the weakest reserve currency with USD\/CAD hovering near 1.39. The economic picture supports this, as Canada’s Q1 2026 GDP growth was reported last week at a sluggish 0.5%, a stark contrast to the robust 2.8% growth seen in the United States. This divergence is a key reason we expect the trend to continue.<\/p>\n
The interest rate spread between Canada and the U.S. is a major headwind for the loonie. As of this morning, the yield on the U.S. 2-year bond is a full 65 basis points higher than its Canadian equivalent, making the U.S. dollar more attractive for investors seeking yield. Historically, such a wide negative spread, similar to the period in 2017-2019, has consistently applied downward pressure on the Canadian dollar.<\/p>\n
Gold has also become a more critical driver for the currency than oil in the current market. Bullion is down more than 17% from its recent record high, now trading around $2,450 per ounce and struggling to find support. We believe any further weakness in gold will directly translate into a higher USD\/CAD rate.<\/p>\n
Given this backdrop, we feel that derivative traders should consider positioning for continued Canadian dollar weakness. Buying call options on USD\/CAD for late summer expirations seems like a sensible strategy to profit from a potential move higher, especially with uncertainty around a new U.S. trade accord. A sustained rally for the loonie will likely require a significant breakthrough in those trade negotiations, which we do not see as imminent.<\/p>\n","protected":false},"excerpt":{"rendered":"
National Bank says loonie weakest reserve currency; 1.39 USD\/CAD driven by growth, yields, gold slump, trade risks.<\/p>\n","protected":false},"author":103,"featured_media":16970,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[5,9,6,115,116],"class_list":["post-54750","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-commodities","tag-dollar","tag-gold","tag-loonie","tag-outlook"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/54750","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=54750"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/54750\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16970"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=54750"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=54750"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=54750"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}