National Bank Canada's (NBC) Stéfane Marion and Kyle Dahms highlights that the Canadian Dollar (CAD) has been the weakest reserve currency recently, with USD/CAD back near 1.39. They link this to Canada’s deteriorating real growth, negative Canada–U.S. 2‑year spreads and falling Gold prices. They expect CAD to stay under pressure near term and now project USD/CAD at 1.35 by year-end, with a stronger trade accord needed for a sustained rally.

CAD pressured by growth and bullion

"The Canadian dollar has been the worst-performing reserve currency in recent weeks, with USD/CAD moving back to 1.39 — the level last seen at the end of March, during the worst of the equity market pullback that followed the closure of the Strait of Hormuz."

"Oil still matters for Canada, but in the current market configuration, gold appears to be the more relevant marginal driver. Under these circumstances, bullion’s downtrend — now more than 17% below its recent record high — is a key factor behind the loonie’s recent weakness."

"Full-time employment at a record high makes it hard to call Canada a recession story. But with U.S. growth still outperforming by a wide margin, the Canada-U.S. 2-year spread remains a clear headwind for the currency."

"For now, we expect the CAD to remain under pressure. Appreciation should resume, but a sustained rally will likely require Ottawa to secure a trade accord with the U.S. this summer. We have raised our year-end USD/CAD target to 1.35, reflecting persistent uncertainty around geopolitical risks and Canadian firms’ access to the U.S. market."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)