Loonie Extends Gains As Greenback Weakens. Forecast as of 17.09.2025
Speculators have been selling the Canadian dollar for seven of the last nine weeks due to the weak economy. However, Canada is accustomed to tariffs, while fiscal stimulus will make a BoC rate cut unnecessary. Let’s discuss this topic and make a trading plan for the USDCAD pair.
The article covers the following subjects:
Major Takeaways
- The Canadian labor market is cooling down.
- The BoC may end its easing cycle.
- The US dollar may fall further.
- Short trades on the USDCAD pair can be opened with targets at 1.365 and 1.349.
Weekly Fundamental Forecast for Canadian Dollar
The Bank of Canada has been aggressively cutting rates for a long time, although it paused at the last three meetings, citing uncertainty coming from US trade policy. Bloomberg expects another sharp cut of 25 basis points to 2.5% in September amid the US administration’s introduction of 35% tariffs against Canada, which contradicts the terms of the USCMA. What will be the next steps? The trajectory of USDCAD quotes depends on the answer to this question.
Ottawa is not making concessions, and the US sweeping tariffs, coupled with duties on imports of steel, aluminum, automobiles, and copper, are crippling its export-oriented economy. In the second quarter, Canada’s GDP contracted by 1.6%, 106,000 jobs were lost in July–August, and the unemployment rate surged to 7.1%. That is 40 basis points higher than in 2024. According to Bloomberg, the rate should be at 6% to prevent inflation from slowing. Consumer prices are currently stuck at around 2%, but the risks of deflation are high.
Canada’s Unemployment Rate and Yearly CPI
Source: Bloomberg.
The Canadian dollar depreciated against the US dollar while its Australian and New Zealand counterparts, as well as Asian and Latin American currencies, rose against the greenback. At the same time, geopolitical factors and the ongoing political crisis in France have hindered European currencies.
The current economic challenges faced by Canada have prompted Citigroup to anticipate four additional acts of monetary expansion by the Bank of Canada, which are expected to drag USDCAD quotes to 1.39. Meanwhile, hedge funds and asset managers have also been focused on selling the Canadian dollar on a net basis for seven of the past nine weeks.
Speculative Positions on Canadian Dollar
Source: Bloomberg.
However, the losing streak cannot last forever. Excessively stretched bearish positioning on the Canadian dollar, combined with fiscal stimulus announced by the government to finance infrastructure projects, trade certainty, and different rates of monetary expansion by the Fed and the BoC, allows USDCAD bears to anticipate a moderately optimistic outlook.
The derivatives market estimates the expected scale of monetary policy easing by the Bank of Canada at 43 basis points by the end of 2025, and by the Fed at 68 basis points. JPMorgan Chase and BMO Global Asset Management anticipate the cycle will end in September. As a result, the USDCAD rate is expected to decline to 1.35–1.36.
This outcome is more probable than Citigroup’s forecast. If the US dollar begins to weaken, it will have serious and long-lasting consequences. It remains to be seen whether the greenback will follow the same path as the yen, which experienced a 50% decline in value due to Shinzo Abe’s Three Arrows policy.
Weekly USDCAD Trading Plan
Against this backdrop, if the USDCAD pair fails to return above 1.38 in the near future, short trades can be considered with the targets at 1.365 and 1.349.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDCAD in real time mode
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