ING says Canadian dollar has further to fall on tariff chaos
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
A substantial reversal in CAD fortunes could arise if trade negotiations accelerate rapidly or if oil prices experience a significant recovery. Additionally, if the Fed surprisingly raises rates or adopts a less dovish outlook, the CAD could find unforeseen support against the USD.
USD/CAD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
ING | Bullish | 1.33 |
Rabobank | Bullish | 1.36 |
Bank of America | Bullish | 1.35 |
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 underperformance against G10 peers contained to around half a percentage point once the broader dollar move is stripped out, and has kept hedging costs muted relative to when the trade dispute first flared in December 2024. ING's view diverges from that complacency, pointing to dovish Bank of Canada repricing and a rising tariff risk premium as reasons CAD should underperform peers such as AUD and NOK by a meaningful margin.
The near term path for USD/CAD still points higher toward 1.3920-1.3950, though ING's bearish dollar view, built on expectations for Fed cuts by year end, is expected to cap those gains into the fourth quarter. ING thinks markets are underpricing the damage from the Canada tariff dispute and expects the loonie to keep losing ground against its G10 peers. Summary: ING expects CAD to underperform most G10 peers in the coming months, citing dovish Bank of Canada repricing and a rising tariff risk premium USD/CAD has scope to move higher near term toward 1.3920-1.3950, but ING sees gains later capped by an expected dovish Fed Firm forecasts USD/CAD at 1.39 by the end of the third quarter and 1.38 by the end of the fourth 50% US tariffs on roughly $20bn of Canadian goods took effect after talks collapsed on 22 August, with 50% tariffs on Canadian autos, auto parts and steel due from 1 January 2027 Canada has unveiled matching dollar-for-dollar retaliatory tariffs worth $20bn, including 50% levies on steel and aluminium, set to take effect on 8 September Markets have pared Bank of Canada hike pricing to 44bp cumulative by April 2027, down from 63bp at the start of the week; ING pencils in one hike in Q2 2027 and another in Q4 2027 ING says CAD's muted reaction so far reflects markets still assuming an eventual return to negotiations, an assumption it isn't ready to bet against this time either The firm expects AUD and NOK to outperform CAD by a meaningful margin, supported by higher carry and stronger fundamentals ING says the Canadian dollar has further room to fall as an escalating trade dispute with the United States weighs on growth and prompts markets to pare back expectations for Bank of Canada rate hikes, even as the currency has so far proven more resilient than the scale of the tariff shock might suggest.
The bank's FX strategists argue that CAD will underperform most of its G10 peers in the coming months, pointing to a combination of dovish repricing in Bank of Canada rate expectations and a rising tariff risk premium. That view comes despite a relatively contained market reaction to the collapse of trade talks on 22 August, after which 50% US tariffs on roughly $20 billion of Canadian goods took effect, with a further 50% levy on Canadian autos, auto parts and steel due from 1 January 2027. Canada has responded with dollar-for-dollar retaliatory tariffs of its own worth $20 billion, including 50% duties on steel and aluminium, set to take effect on 8 September.
Sources & References
How we cover this story
Cross-firm research
Bank of Canada Rate Decision Preview — September 2, 2026: What the Street Expects
USD/CAD trades at 1.3877, roughly 2.79% above the 25-firm Dec-26 consensus of 1.35, framing the BoC decision as a key catalyst for realignment.
USD/CAD Consensus Check: Spot at 1.3864, Median Target 1.35 — Week of August 26, 2026
USD/CAD trades at 1.3864, roughly 2.69% above the 25-firm median Dec-2026 target of 1.35, with a 0.11 spread separating the most and least bearish desks.
USD/CAD Consensus Check: Spot at 1.3834, Median Target 1.35 — Week of August 25, 2026
USD/CAD trades 2.47% above the 25-firm median Dec-26 target of 1.35, with a 0.11 dispersion range signalling meaningful disagreement on the BoC-Fed path.