Synopsis:

ANZ sees further CAD weakness in H1 2025, as US tariff risks and economic struggles persist despite a rapid BoC easing cycle. While some positive economic signals exist, they are not enough to offset short-term CAD pressures, and USD/CAD could briefly approach 1.50.

Key Points:

1. US Tariffs Remain a Major Headwind for CAD:

   • Tariffs have been delayed but remain a Q1-Q2 risk.
   • BoC estimates a negative 2ppt GDP impact from US tariffs.
   • The Canadian economy is struggling despite rapid BoC easing.

2. Economic Data Shows Some Resilience, but Growth Rebound is a Late-2025 Story:

   • December & January job reports exceeded expectations, showing signs of a pickup in economic activity.
   • Economic surprise differentials vs. the US have eased, but a sustained Canadian recovery is unlikely until late 2025.

3. Positioning and Macro Indicators Suggest CAD Pressure Persists:

   • CFTC data shows a decisive net long USD/CAD position.
   • ANZ FX Bubble Indicator suggests USD/CAD gains are somewhat stretched, but strong USD fundamentals continue to dominate.
   • USD/CAD is likely to stay in the upper 1.40 range, with a brief move toward 1.50 possible.

Conclusion:

More CAD weakness is expected in H1 2025, as tariff risks, economic struggles, and policy divergence keep USD/CAD elevated. A rebound in Canadian growth is a late-2025 story, and in the near term, further CAD depreciation is likely, with USD/CAD potentially testing 1.50 briefly.