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The future of the USD/CAD pair: long-term forecast

Commentaries & Views

The US dollar was the ultimate king of the currency party in 2022 but everything passes sooner or later. In spring 2023, there are few traces of the former USD confidence. Many analysts believe that the USD will weaken to the basket of major currencies, including CAD. Let’s try to find out how much the Canadian dollar might increase to the US dollar and why it may happen.

Firstly, we can recall what was going on with the USD for most of 2022. Here is the chart with the US dollar index. We see how powerfully the USD grew to the major currencies.

After that, we allocate the USD/CAD pair. The chart below reminds us that the difference between the US and the Canadian dollars for the same period reached about 8%. This number is smaller than in the previous picture but still impressive. If you want to predict such market movements, you can use different trading tools. One of them is the economic calendar thanks to which it’s possible to find all the major economic events in one single place.

You may have noticed we limited both charts to October 2022. It was the moment when the USD decreased on the expectations that the Fed would stop hiking the interest rate. As we realize now, market participants were wrong. The Fed continues to increase the key rate and the last hike happened at the beginning of May.

Federal Reserve Chairman Jerome Powell claimed that the regulator isn’t going to decrease the rate and that the decision about the pause in increases will be made at the June session. But most analysts are sure – it was the very last hike. And if the cycle is close to the end, then there are more and more alternative assets to the USD. Among the options, experts name reaching-its-high Gold, other currencies, and even stocks of tech companies.

In addition, there are multiple factors increasing the pressure on the US dollar. Major central banks have increased interest rates in trying to keep up with the Fed and beat inflation. China canceled most Covid-restrictions and strives to return the economy to its former position. The extreme situation with US regional banks might influence the Fed policy and force the regulator to decrease the interest rate earlier than once thought.

All the abovementioned things are connected with the USD, not with the CAD. But it’s logical that if the US dollar is under pressure then the Canadian dollar will probably show growth, even without obvious drivers. Moreover, the CAD has something to boast about. Firstly, the Canadian economy seems to burgeon, unlike the US economy. Secondly, analysts consider the CAD to be underestimated at the moment.

Sounds positive enough to be the topic of a Pharell Williams hit – but we should also pay attention to the fact that the Bank of Canada stopped the cycle of increasing the key rate in January. It means that the Canadian economy will probably snap back to normal quicker than the American one. But it also means that the key rate is unlikely to boost the CAD in the near future. Plus, the US and Canada are neighbors and their economies are closely related. If the US economy faces recession, Canadian export will fall to a low pitch.

But it seems like the cons for the USD outweigh everything else. That’s why many experts agree that the USD/CAD pair will have changed from 1.335 to levels near 1.27-1.27 or even lower by the beginning of 2024.

Just remember that global and regional economies change rapidly nowadays. Therefore, you should do your own research before you decide to make any trade in the markets.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.