The Canadian dollar may not get much stronger this year, according to a new forecast from Desjardins, one of Canada's largest financial institutions. In a research note released Monday, economists Jimmy Jean and Tiago Figueiredo said that drawn-out negotiations over the USMCA trade pact—known in Canada as CUSMA—and ongoing US trade policy noise will keep the currency pair stuck in the low-1.40s.
Specifically, Desjardins sees USD-CAD holding near 1.42 this quarter before easing to 1.37 by the second quarter of 2027, as trade uncertainty gradually fades. That implies only a modest appreciation for the loonie over the next couple of years, and little relief for Canadians hoping for a stronger currency.
Why the loonie is stuck
The USMCA, which replaced NAFTA in 2020, is set for a review that could lead to renegotiation. The talks have been volatile, with the US administration frequently threatening tariffs and other trade measures. For businesses, this unpredictability is a major headache—it makes it hard to plan investments, pricing, and supply chains.
Desjardins' economists argue that merely avoiding a breakdown in the trade pact would remove a "tail risk" for the loonie—that is, the risk of a sharp, sudden drop if talks collapse. But even a successful negotiation wouldn't restore the predictability that businesses crave for long-term planning. As a result, they expect the currency pair to move in a range rather than follow a clean trend.
This is a common pattern during trade negotiations: markets hate uncertainty, and currencies of countries heavily reliant on trade with the US tend to weaken when that uncertainty spikes. The Canadian dollar is particularly sensitive because the US is Canada's largest trading partner, and a large share of Canadian exports head south of the border.
What this means for investors
For everyday investors, the loonie's trajectory matters in several ways. If you hold US stocks or funds, a weaker Canadian dollar means your US investments are worth more in Canadian dollars—but it also means that any future gains could be offset if the loonie strengthens. Conversely, if you're planning a trip to the US or buying goods priced in US dollars, a weaker loonie makes those purchases more expensive.
Desjardins' forecast suggests that the currency will remain relatively weak for the foreseeable future, which could be a headwind for Canadian consumers and businesses that import goods. On the flip side, exporters—like many Canadian manufacturers and natural resource producers—tend to benefit from a weaker currency because their products become cheaper for foreign buyers.
Investors should also keep an eye on the broader trade picture. The USMCA talks are just one piece of a larger puzzle that includes US tariffs on steel, aluminum, and other goods, as well as global trade tensions. For example, the Chinese yuan has been holding near multi-year highs as the People's Bank of China signals slower gains, showing how different currencies are reacting to their own trade dynamics.
Similarly, oil prices have been edging higher as Iran rules out US talks, which could indirectly affect the loonie since Canada is a major oil exporter. Higher oil prices typically support the Canadian dollar, but the effect may be muted if trade uncertainty dominates.
What to watch next
The key variable is the pace and outcome of the USMCA review. Any signs of progress—or setbacks—could move the currency quickly. Desjardins' base case is that talks will be drawn out and volatile, but they don't expect a complete breakdown. That's a relatively benign outlook, but it leaves little room for optimism.
For investors, the takeaway is to avoid betting on a sharp loonie rally anytime soon. Instead, focus on how currency movements affect your portfolio. If you own international investments, consider whether you're comfortable with currency risk, and remember that a weaker loonie can actually boost returns on foreign assets when converted back to Canadian dollars.
As always, it's wise to diversify and not make sudden moves based on a single forecast. The currency market is notoriously difficult to predict, and trade talks can shift quickly. But Desjardins' view aligns with the broader consensus that the loonie will remain under pressure until trade uncertainty clears.
In the meantime, keep an eye on headlines about the USMCA talks and US trade policy. Global markets are also reacting to geopolitical events, and shipping talks in the Hormuz Strait have eased some fears, but trade remains a central theme for currencies worldwide.
