TD Securities says firmer Canadian growth releases in recent weeks support a more constructive stance on the Canadian dollar and could pull USD/CAD down from what it describes as stretched post-FOMC levels. The bank has positioned for a retracement through a 2‑month 1.4050/1.39 put spread, aiming to benefit if the pair eventually trades below 1.40.
It adds that the latest rally in USD/CAD has been extended, pointing out that spot previously held above 1.42 mainly when broad-based tariff risks were elevated around last year’s “Liberation Day”. TD views a repeat of that risk backdrop this year as unlikely, reinforcing its expectation of a move lower in the exchange rate.
Canadian Economic Resilience And Upside For The Loonie
We believe the market has become too pessimistic on Canada’s growth outlook, especially given the improvement in Canadian economic data in recent weeks. This suggests there is scope for the Canadian dollar to recover against the US dollar. The current exchange rate does not seem justified by the underlying fundamentals.
Recent statistics support this view, as Canada’s latest GDP report for April showed a 0.4% month-over-month increase, beating expectations. Furthermore, the jobs report for May added 55,000 positions, pushing the unemployment rate down to a resilient 5.6%. This economic strength suggests the Canadian dollar has room to strengthen.
Strategic Positioning And Outlook For USD/CAD
With this improving data, we expect the USD/CAD exchange rate to eventually retrace below 1.40. We have implemented a two-month put spread with strikes at 1.4050 and 1.39. This options strategy is a defined-risk way to bet that the currency pair will fall over the coming weeks.
The rally in USD/CAD following the last Federal Reserve meeting looks stretched. Spot prices have not stayed above 1.42 for long unless there were major risks, such as the broad-based tariff threats we saw in mid-2025. We believe a repeat of that scenario is unlikely this year.
