Recent forecasts for the USD to CAD exchange rate indicate a trend of weakness for the US dollar alongside a strengthening Canadian dollar. Currently, the USD is pressured by a risk-on market sentiment, drifting lower as investors seek higher-yield assets. As noted by analysts, expectations for aggressive Federal Reserve rate cuts beginning in early 2026 have contributed to the USD's downtrend, with the dollar recently trading near 60-day lows at 1.3789, 1.3% below its three-month average of 1.3964.
In contrast, the Canadian dollar has gained momentum following unexpected drops in unemployment, falling from 6.9% to 6.5%. This favorable labor market data, combined with rising oil prices—which have recently increased 1.5% to $59.84—supports the CAD as Canada benefits from its status as a major oil exporter. However, the CAD's recent performance has also been influenced by mixed signals from the Canadian economy, particularly a contraction in the manufacturing sector as indicated by a PMI below the neutral threshold of 50.
Analysts point out that the CAD is highly sensitive to fluctuations in oil prices, which are currently volatile and about 3.6% below their three-month average. The future trajectory of the CAD depends significantly on oil market trends and Bank of Canada's monetary policy decisions, which are closely tied to economic indicators such as inflation and employment rates.
With the US dollar losing relative yield advantage amid forecasts of a dovish Fed, upward pressure on the CAD could persist if the trend of falling unemployment continues and oil prices stabilize or rise further. Consequently, market observers expect the USD to remain under downward pressure against the CAD in the near term, as risk sentiment favors the loonie amidst a stable but uncertain global economic landscape.
