Synopsis:

HSBC has revised its base case for USD/CAD back to a pre-US election status quo, as recent developments suggest delays or rollbacks in US-Canada tariffs. While the risk of a prolonged trade war remains, markets are now assuming no sustained tariffs, which aligns with HSBC’s 1.47 year-end target. However, if trade tensions escalate, USD/CAD could still surge toward 1.60 due to BoC easing and weaker Canadian growth.

Key Points:

1️⃣ No Sustained US-Canada Tariffs Now the Base Case 🌍

• HSBC had previously assumed tariffs would be fully imposed and sustained.
• Recent developments suggest delays/rollbacks, prompting the forecast shift.

2️⃣ Market Also Pricing in a No-Tariff Scenario 📊

• The FX market appears to be aligning with HSBC’s updated view.
• Tariff risk is still present but not the dominant expectation.

3️⃣ USD/CAD Year-End Target Revised to 1.47 💵

• The pre-election status quo suggests a more stable CAD outlook.
• A trade war escalation remains a risk scenario but is no longer the base case.

4️⃣ Risk Case Still Sees USD/CAD at 1.60 📈

• If tariffs are fully imposed, Canada could fall into recession, forcing aggressive BoC easing.
• This would drive significant CAD weakness, pushing USD/CAD higher.

Conclusion:

HSBC moves its USD/CAD base case back to a pre-election status quo, reflecting less likelihood of sustained tariffs. The new year-end target is 1.47, but a full trade war scenario could still drive USD/CAD toward 1.60. Markets are currently pricing in a more stable outlook, but uncertainty remains high.