Synopsis:

RBC has revised its USD/CAD forecast range to 1.38–1.44 (down from 1.40–1.47) in response to developments surrounding reciprocal tariffs, US-Canada rate spreads, and upcoming political events in Canada. While a CAD recovery is still expected, key variables such as the April 28 federal election outcome and potential fiscal policy responses remain central to the outlook.

Key Points:

• New USD/CAD range:
  RBC lowers its expected trading band for USD/CAD to 1.38–1.44, reflecting a less aggressive upside for the USD following tariff announcements.

• Tariffs and spreads in focus:
  The move is driven by:

  1. Clarified tariff impact (assumed manageable for Canada),

  2. US-Canada interest rate differentials,

  3. Recent price action, and

  4. Potential Chinese stimulus, which may support global growth.

• CAD recovery still base case:
  RBC expects a gradual CAD rebound into late 2025, assuming no major escalation in tariffs and relative Canadian economic outperformance.

• April 28 election outcome is pivotal:

  • A majority government result would be CAD-positive, increasing clarity and possibly enabling faster fiscal stimulus.

  • Conversely, a minority outcome or lack of fiscal ambition could drag on CAD performance.

• BoC policy offset depends on fiscal action:
  If more fiscal support is introduced, it could lessen pressure on the Bank of Canada, supporting CAD stability despite tariff-related uncertainty.

Conclusion:

RBC's updated USD/CAD range of 1.38–1.44 reflects cautious optimism. The balance of risks still favors a CAD recovery, particularly if fiscal stimulus follows April’s election and Canada avoids prolonged trade fallout. However, much depends on domestic political clarity and external macro trends, including China’s policy response and US growth moderation.