The Canadian dollar (CAD) has shown signs of strengthening recently, largely due to a series of positive economic indicators and supportive monetary policies. Notably, Canada's economy added 54,000 jobs in November, far exceeding expectations, which helped reduce the unemployment rate from 6.9% to 6.5%. This robust jobs report has enhanced confidence in the CAD, leading to predictions of further gains.
Analysts from Scotiabank expect the USD/CAD exchange rate to drop to 1.34 by the end of 2025 and further to 1.28 by the end of 2026. This outlook is based on a weakening U.S. dollar and the positive economic fundamentals emerging from Canada. Similarly, CIBC has forecasted a decline in the USD/CAD rate to 1.35 at the end of 2025 and to 1.33 by the end of 2026, citing anticipated interest rate cuts by both the Federal Reserve and the Bank of Canada.
As for monetary policy, the Bank of Canada has maintained its policy rate at 2.25%, indicating a cautious but optimistic approach to the economy. This decision is likely to support the CAD as it signals stability in interest rates through 2026.
In terms of exchange rates, the CAD has recently experienced some stability. The CAD to USD is at 30-day lows near 0.7184, close to its 3-month average, while the CAD to EUR is also at lows around 0.6175. The CAD to GBP has dipped to 60-day lows at 0.5359, just below its 3-month average of 0.5397. Conversely, the CAD to JPY has risen to 113.4, marking a 1.9% increase over its 3-month average.
A key driver for the CAD is its relationship with oil prices. Currently, oil is trading at 30-day highs near 63.01 USD, slightly above its 3-month average. This uptick in oil prices often positively influences the CAD, as Canada's economy benefits from increased oil revenues.
Overall, the outlook for the Canadian dollar appears positive, supported by favorable job data, solid economic fundamentals, and stable monetary policies. Businesses and individuals involved in foreign exchange transactions should stay vigilant, as these trends may yield opportunities for cost savings in international dealings.
