Canadian Dollar: Fragile recovery tied to US – Commerzbank
Commerzbank FX analyst Michael Pfister highlights that the Canadian Dollar’s recent weakness contrasts with a fragile recovery in Canada’s real economy.
Canadian Dollar's recent decline is tied to its fragile recovery in the real economy, according to Commerzbank analyst Michael Pfister. Although labour market indicators, GDP surprises, and stronger PMIs suggest a strengthening economy, the Canadian Dollar (CAD) remains vulnerable to oil prices and low Canadian interest rates compared to the US.
Commerzbank predicts EUR/CAD around 1.60–1.62 and USD/CAD reaching 1.35 by late 2027. The Canadian Dollar has been one of the worst-performing G10 currencies this year, but the situation has improved due to the Bank of Canada's reduced interest rate cuts and rising energy prices from the Iran conflict, benefiting Canadian exports.
Market expectations now foresee fewer rate hikes from the Bank of Canada compared to the Federal Reserve, leading to higher USD/CAD levels. The connection between the Canadian Dollar and oil prices is likely to persist unless the Strait of Hormuz remains open. Nevertheless, recent leading indicators indicate a fragile recovery in the real economy, with the Purchasing Managers' Index stabilising in expansionary territory and exports rising.
Despite recent gains, the Canadian Dollar's appreciation is expected to be gradual, with potential setbacks from US political factors.
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