US dollar exchange rate

In 2026, the Canadian dollar is expected to outperform as higher interest rates keep CAD-denominated assets attractive to investors, while US rates stabilize or decline. Political friction between the executive branch and the Federal Reserve over efforts to accelerate rate cuts is likely to increase uncertainty but also raise the probability of at least one US rate cut during the year. Easing in the United States would support domestic growth but weigh on the US dollar by lowering bond yields and diminishing its appeal as an investment currency. As a result, the USDCAD rate is forecast to decline 2.3% in 2026.

Major volatility has characterized the 2020 to 2025 period, as the Canadian dollar was repeatedly influenced by external shocks and shifting economic fundamentals. Early in the period, the currency rebounded due to rising oil prices and signs of economic recovery following the onset of the COVID-19 pandemic. However, the US economy's faster recovery soon led to sustained loonie depreciation, particularly as investors directed funds toward the comparatively stronger US dollar. Short-term boosts from geopolitical events, such as the Russian invasion of Ukraine, drove temporary surges in demand for Canadian energy exports, but these effects proved transitory as global capital flows once again favored the US. Divergent monetary policy responses—while both the Bank of Canada and the US Federal Reserve raised rates to curb inflation—the US dollar remained a more attractive vehicle for global investment, reinforcing the loonie's relative weakness. Ongoing trade tensions and episodic disputes, especially surrounding North American tariffs and negotiations, have created persistent uncertainty, amplifying currency volatility and undermining investor sentiment.

Macro trends, such as shifts in commodity markets and changes in global capital flows, played a crucial role in shaping the driver over 2021 to 2026. The loonie's value tracked not only the fortunes of Canadian energy exports but also responded sharply to global risk aversion during periods of financial instability, including episodes of elevated inflation and supply chain disruption. Underlying these patterns was the persistent outperformance of the US economy compared to Canada's more moderate expansion, reinforcing the loonie's long-term depreciation trend despite intermittent episodes of strength. This pushed USD/CAD to a level of 1.7% CAGR from 2021 to 2026.