The
Canadian dollar
has rallied after falling by two per cent during March, but many currency watchers aren’t convinced it has enough tailwind to recoup those losses.
The loonie has been struggling mightily in recent weeks considering the scope of oil price increases, Erik Nelson, an analyst at Wells Fargo & Co., said in a note on Wednesday.
He said the reasons for those struggles include a weaker outlook for growth and lower expectations around interest rates compared with, say, Great Britain and the eurozone.
“These central banks have seen greater repricing toward hikes in the last month,” he said in an email.
Markets are pricing in one 25-basis-point hike in Canada, with bets near 70 per cent for a second hike this year, but are fully pricing in two hikes in the eurozone, according to overnight index swap data from Bloomberg.
In the early days of the United States-Israel-led war on Iran, the loonie strengthened against its American counterpart on spiking oil prices. That trade was clipped as the war continued and investors fled to the safety of the greenback, boosting the U.S. dollar index by 2.4 per cent last month.
On Wednesday, the Canadian dollar made some progress in turning around last month’s slide, gaining nearly a quarter of a per cent to peek above 72 cents U.S., after topping out in March at 73.7 cents U.S.
Sentiment began to reverse on news that U.S. President Donald Trump was considering ending the war in the next two to three weeks though in a televised address on Wednesday evening he added that Iran would be hit “extremely hard” during that period.
The loonie was trading Thursday morning just under 72 cents U.S.
But even with U.S. dollar pressure abating, Nelson said the loonie could be in for a rough ride.
“The second quarter could still be a bumpy ride with (the) labour market on shaky footing and (Canada-U.S.-Mexico Agreement) uncertainty still lingering,” he said
,
in the note.
Wells Fargo is calling for the loonie to trade at 72.5 cents U.S. during the second quarter.
CIBC Capital Markets also doesn’t expect a significant uptick for the Canadian dollar in an end-of-war scenario and foresees the loonie holding around 72 cents U.S.
Geopolitical sentiment has really driven currency action, benefiting the greenback the most, Sarah Ying, head of FX strategy in fixed income, currency and commodities at CIBC Capital Markets, said.
“In an end-of-war scenario, we suspect this geopolitical risk premia is unwound. However, opposite that is oil prices selling off, which will weaken the (Canadian dollar) leg,” she said in a note on Monday, adding she expects any oil price correction would be “rather sharp.”
Ying said once the war is wound up, investors will likely turn their attention back to the
Canada-U.S.-Mexico Agreement
review that is hanging over the Canadian economy, “deteriorating” economic fundamentals and sluggish business investment.
“We suspect after taking these things into account, (the Canadian dollar) will be an underperformer,” she said.
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The Bank of Canada debated the impact soaring oil prices stemming from the war in Iran could have on inflation ahead of their most recent interest rate decision, with some governors concerned that a near-term increase would raise inflation risks over a longer period.
A summary of deliberations by the central bank’s governing council, which led to the key overnight interest rate being held at 2.25 per cent on March 18, shows that was among the concerns expressed in a discussion about the importance of different risks to the inflation outlook.
“Higher gasoline prices, combined with still-elevated inflation in essentials such as groceries, could push up inflation expectations,” the summary said. “This was particularly relevant given that the experience with high inflation in 2022–23 remained fresh in people’s minds.” — Barbara Shecter, Financial Post
Today’s data: Canada international merchandise trade for February, U.S. Challenger jobs cuts, trade balance for February, initial and continuing jobless claims.
Earnings: Foot Locker Inc., The Dow Chemical Co., Liberty Mutual Holding Co. Inc.
Of the numerous non-refundable credits on the 2025 tax return, one of the most valuable is the
disability tax
credit (DTC). The DTC is a non-refundable tax credit that is intended to recognize the impact of various non-itemizable, disability-related costs. But just because you apply for the DTC, doesn’t mean the Canada Revenue Agency will go along as one taxpayer found out. Jaime Golombek explains
here.
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McLister on mortgages
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Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.
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