Canadian Dollar: Scotiabank Sees Upside Potential to 1.35–1.37 Against the US Dollar

Scotiabank’s currency strategists are focusing on further upside for the Canadian dollar against its US counterpart, eyeing a move toward the 1.35–1.37 range, according to a recent note.

What’s Driving the Loonie’s Momentum?

The Canadian dollar has shown resilience in recent trading sessions, supported by a combination of firm oil prices and a broadly softer US dollar. Scotiabank’s analysis suggests that technical indicators are aligning in favor of the loonie, with the pair (USD/CAD) potentially testing lower levels in the coming weeks.

As of this week, USD/CAD is hovering around the 1.37 handle, and a break below that could open the door to the 1.35–1.37 zone. This represents a modest appreciation for the Canadian dollar, which would be welcome news for Canadian consumers and businesses that rely on imports.

Market Context and Implications

The potential move comes amid a backdrop of shifting interest rate expectations. The Bank of Canada has maintained a relatively hawkish stance compared to the Federal Reserve, which has helped narrow the yield differential between Canadian and US government bonds. This, in turn, makes Canadian assets more attractive to foreign investors, supporting the loonie.

Additionally, Canada’s strong trade surplus, driven by energy exports, provides a fundamental underpinning. If global growth remains steady and oil prices stay elevated, the Canadian dollar could find further support.

Why This Matters to You

For Canadians, a stronger dollar means lower costs for imported goods and travel abroad. For businesses engaged in cross-border trade, it affects profit margins and competitiveness. Investors with exposure to currency markets should monitor these levels closely, as a break below 1.35 could signal a more sustained trend.

Conclusion

Scotiabank’s outlook points to a constructive near-term path for the Canadian dollar, with the 1.35–1.37 area as the next key target. While currency forecasts are inherently uncertain, the combination of technical momentum and supportive fundamentals suggests that the loonie may have room to run. As always, market participants should remain alert to shifts in global risk sentiment and commodity prices.

FAQs

Q1: What does USD/CAD 1.35–1.37 mean for the Canadian dollar?
A: It means the Canadian dollar is expected to strengthen, as fewer US dollars would be needed to buy one Canadian dollar. For example, a move from 1.38 to 1.35 represents a roughly 2% appreciation of the loonie.

Q2: Why is Scotiabank’s forecast important?
A: Scotiabank is one of Canada’s major banks, and its FX research is widely followed by institutional investors and corporate treasurers. Their insights can influence market positioning and trading strategies.

Q3: What factors could prevent the Canadian dollar from reaching 1.35?
A: A sudden drop in oil prices, a risk-off shift in global markets, or a surprise hawkish move by the Federal Reserve could all weigh on the loonie and keep USD/CAD elevated.