ING says Canadian dollar has further to fall on tariff chaos
At a Glance
The desk views a bearish trajectory for the Canadian dollar (CAD), aligning with ING's recent analysis that anticipates further declines due to ongoing tariff disputes. Per the full note, ING challenges the prevailing market complacency, which assumes tariff tensions will lead to eventual negotiations, advocating instead for a more immediate bearish stance against G10 counterparts. With USD/CAD expected to trade higher toward 1.3920-1.3950 in the short term, potential upward momentum appears limited by broader US dollar weakness as Fed cuts loom by year-end. Our internal consensus aligns around a target of 1.3823 for March 2026, which hangs on the balance of these shifts in expectations.
Key Takeaways
- 01ING's bearish view on the CAD is rooted in underappreciated tariff risks and dovish central bank sentiment.
- 02Expectations for USD/CAD to push higher towards the 1.3920-1.3950 range, though gains may be capped by anticipated Fed rate cuts.
- 03Current market consensus appears cautious, with notable variability among firm forecasts around the future CAD trajectory.
Full Analysis
What the desk is arguing
The desk frames this as a critical juncture for the CAD, especially in light of recent escalations in Canada-US trade tensions. The tariff risks are seen as unpriced by the market, with expectations for the Bank of Canada pivoting dovishly, potentially impacting the CAD's competitiveness versus peers like the AUD and NOK.
ING notes that markets have only slightly adjusted their expectations regarding future Bank of Canada rate hikes, now pricing in a cumulative increase of just 44 basis points by April 2027, a sharp decline from 63 basis points earlier in the week. This dovish pricing creates a significant headwind for the CAD, reinforcing the bearish outlook on USD/CAD.
Where it sits in our coverage
The current spot for USD/CAD is 1.4020, with our consensus target for March 2026 at 1.3823, situated within a range of 1.3500-1.4034. Notable firm targets include: - CIBC: 1.3823 - TD: 1.4029 - RBC: 1.3800.
This bearish outlook diverges from the broader market sentiment reflected in our coverage, where some firms like Stanchart predict even lower targets of 1.3500 for March 2026, indicating a relative consensus around a weaker CAD, but lower relative to our desk's projection.
How other firms see it
Overall, firms that share a bearish outlook include ING and Stanchart, reinforcing the thought that CAD will underperform amid trade disputes. Conversely, firms such as Nomura and CIBC maintain outlooks that could offer some upward potential for the CAD if tariffs stabilize.
As this situation unfolds, the trajectory of oil prices and US monetary policy, particularly Fed rate cuts, will be closely watched as they directly correlate to CAD performance against the USD.
Market Implications
Key levels to watch are USD/CAD near 1.3920-1.3950, where upward resistance might form. Positioning around these figures may signal trader sentiment ahead of any further US monetary policy shifts. The broader response to upcoming economic data out of Canada will be critical in shaping the CAD's direction.
USD/CAD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
ING | Bullish | 1.33 |
Rabobank | Bullish | 1.36 |
Bank of America | Bullish | 1.35 |
From the original
ING's call sets up a bearish CAD view even after a period of relative currency resilience, arguing that markets are still applying a 2025 style playbook that assumes escalation gives way to negotiation and fades the initial FX reaction. That framework has kept CAD's underperforma
Related speeches
4 itemsThe Canadian dollar has further to fall on tariff chaos
The desk argues that the Canadian dollar (CAD) faces significant downside pressure due to escalating trade tensions and unexpected tariff chaos, which markets might not yet fully price in. Per the full note from ing-think, CAD is expected to underperform its G10 peers, exacerbated by the implications of the US imposing 50% tariffs on Canadian goods beginning January 2027 and retaliatory measures from Canada. Additional data suggest that while CAD had exhibited short-term resilience, structural economic headwinds loom larger given Canada's recent economic contraction in three of the last four quarters. The sentiment this month seems to predict a pivot towards dovish Fed re-pricing, which may also shelter gains for the USD against CAD, setting the stage for a challenging few months ahead for the loonie.
Monthly Executive Briefing: A tale of two economies
The desk posits that diverging economic narratives between the U.S. and Canada support a more bullish stance on CAD against the USD in the medium term. Per the full note from RBC, the Canadian economy is showing signs of resilience, underlined by robust employment figures, while the U.S. faces potential growth headwinds as interest rates plateau. This contrast is pivotal for traders, especially against the backdrop of recent central bank meetings that have left rates unchanged amid mixed economic signals.
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