Fed: The Federal Reserve remains in a “higher for longer” stance, with no immediate urgency to cut due to resilient U.S. growth and persistent services inflation.

BoC: The Bank of Canada already began easing in mid-2025. Inflation has come down closer to target, and the BoC is seen as being ahead of the Fed in its cutting cycle.

Impact: Policy divergence supports short-term USD strength over CAD.

Canada is a net energy exporter, heavily tied to crude oil and natural gas. Oil prices around $80–$85/bbl are supportive of CAD.

However, Trump’s trade tariffs on metals and uncertain U.S. energy policy under a potential second Trump term could disrupt Canadian trade flows.

If oil corrects due to global growth slowdown, CAD could lose structural support.

Impact: CAD strength is conditional on oil prices holding up and global growth remaining solid.

Canada runs a current account close to balance, but is vulnerable to U.S. trade disruptions. A Trump presidency raises NAFTA/USMCA risk, which may trigger capital flight from CAD.

The U.S. fiscal deficit remains structurally high, which can weigh on the USD over the long term. But for now, yield differentials and inflows to U.S. assets keep the dollar strong.

Impact: Political trade risks and fiscal divergence create uncertainty, favoring USD over CAD in the near term.

Short-term macro and rate differentials favor long USDCAD, especially if oil stalls and U.S. data continues to beat.
However, structurally, CAD could recover later in 2025 if oil demand rebounds and Trump’s policies don’t severely disrupt trade.

LONG USDCAD

Jul 10 2025