Outlook
The CAD remains muted as GDP stalled in November, with near-term moves dominated by oil price dynamics. A sustained rise in oil toward new multi-month highs could support the loonie, while softer oil or risk-off mood may keep the CAD in a tight range around current levels. The domestic data backdrop is mixed: BoC held at 2.25% in December, signalling confidence in inflation control without derailing growth, and a China trade deal may ease export pressures. However, external risks exist: US protectionist rhetoric on Canadian aircraft and broader geopolitical shifts could cap gains or weigh on direction. Overall, oil prices are the primary swing factor, with the CAD likely to drift higher on oil strength and lighter on oil weakness, within a broader context of global trade and policy developments.
Key drivers
- Oil price dynamics: CAD tends to move with crude oil; higher oil supports the loonie, lower oil weighs on it.
- Domestic momentum and BoC stance: GDP momentum and the BoC’s 2.25% rate stance shape expectations for future policy and currency direction.
- Trade and policy developments: US tariff threats on Canadian-made aircraft and the China trade deal influence export outlook and risk sentiment.
- Global geopolitics: Speeches and shifts in middle-power diplomacy can affect risk appetite and CAD sensitivity.
- Currency fundamentals: CAD’s status as a commodity-linked, U.S.-oriented currency means oil, U.S. data, and North American trade policy drive much of the near-term moves.
Range
CADUSD 0.7336 is 1.7% above its 3-month average of 0.7216, having traded in a stable 4.6% range from 0.7084 to 0.7413. CADEUR 0.6186 is near its 3-month average, within a range of 0.6120 to 0.6217. CADGBP 0.5358 is 0.7% below its 3-month average of 0.5398, within a range of 0.5322 to 0.5451. CADJPY 113.7 is 1.0% above its 3-month average of 112.6, within a range of 108.4 to 114.9. OILUSD 67.36 is 6.5% above its 3-month average of 63.24, trading in a very volatile 17.0% range from 59.04 to 69.09.
What could change it
- Oil price moves: A break above multi-month highs could push CAD higher; a slide could pressure the loonie.
- U.S. protectionism and trade policy: New or escalated tariffs on Canadian goods may weigh on CAD.
- BoC policy surprises: Any unexpected shift in policy guidance or inflation risk could alter rate expectations and CAD direction.
- China trade deal progress: Further implementation details or changes to tariff arrangements could influence export prospects.
- Risk sentiment and geopolitics: Renewed risk-off or shifts in global alignment among middle powers can affect CAD via risk appetite and demand for Canadian exports.
