The Canadian dollar could be on a gradual climb over the next couple of years, according to a new forecast from ING, a major Dutch bank. ING expects the loonie to strengthen to about CA$1.34 per US dollar by the end of 2027, from current levels around CA$1.40. The main driver: the gap between US and Canadian interest rates is expected to shrink, making Canadian assets relatively more attractive.
What's behind the forecast?
ING's view starts with the Bank of Canada. The bank expects the BoC to hike rates only once more, by a quarter of a percentage point in the first quarter of 2027, bringing its policy rate to 2.75%. A move to 3.0% is seen as unlikely. That suggests the central bank sees limited need to tighten further, given Canada's economic conditions.
The bigger factor is the US. ING argues that US policy rates are sitting further above "neutral"—the level that neither stimulates nor slows the economy—than Canada's rates are. That means the Federal Reserve has more room to cut rates later. As the Fed eases, the interest-rate differential between the two countries narrows, which typically supports the Canadian dollar.
This is a classic currency dynamic: when one country's interest rates fall relative to another's, investors often move money to where yields are higher. A narrower gap reduces the appeal of holding US dollars, helping the loonie firm.
Risks that could complicate the path
ING cautions that the road to CA$1.34 won't be smooth. Trade tensions remain a key wildcard. The threat of US tariffs on Canadian goods has already kept the loonie under pressure, and any escalation could push it lower. For example, recent headlines about tariff threats hitting consumer stocks show how quickly trade policy can move markets.
Another risk is softer spending on artificial intelligence. If AI-related investment slows, it could weigh on global growth and commodity prices, which would hurt Canada's export-heavy economy and its currency. Canada is a major exporter of oil and other commodities, so any slowdown in global demand tends to hit the loonie.
ING's forecast aligns with other views that see Canada's economy picking up. UBS recently said it expects Canada's growth to accelerate, though tariffs remain a risk. That kind of backdrop could support the currency over time.
What it means for investors
For everyday investors, a firmer loonie has several implications. If you hold US dollar assets, a stronger Canadian dollar means your returns in Canadian-dollar terms could be reduced. Conversely, if you're planning to travel to the US or buy US goods, a stronger loonie gives you more purchasing power.
For those with investments in Canadian stocks, a stronger currency can be a mixed bag. Companies that export heavily may see their competitiveness erode, while those that import or have US revenue could benefit. It's not a reason to overhaul your portfolio, but it's worth being aware of.
Currency forecasts are inherently uncertain, and ING's own outlook acknowledges the risks. The loonie has been volatile recently, hovering near 19-month lows as markets awaited US inflation data. That shows how sensitive the currency is to both economic data and geopolitical headlines.
The bottom line
ING's forecast points to a gradual strengthening of the Canadian dollar over the next two years, driven by a narrowing rate gap with the US. But the path is likely to be bumpy, with trade tensions and AI spending swings as potential speed bumps. For investors, the key takeaway is to expect volatility and to keep an eye on central bank moves and trade policy—not to make drastic changes based on a single forecast.
