Synopsis:

Barclays expects USD/CAD to climb to 1.43 as Canada’s economic slack drives rate cuts from the BoC, contrasting with the Fed’s relatively hawkish policy stance. The potential for US tariffs and lower oil prices adds to downside risks for the CAD.

Key Points:

• Diverging Monetary Policies:

  • The Bank of Canada is expected to cut rates steadily into 2025 due to clear signs of economic slack.
  • In contrast, the Fed’s more hawkish stance supports USD strength.

• Vulnerabilities for Canada:

  • US fiscal stimulus could bring some positive spillovers to Canada, but the timing of these effects is uncertain.
  • The Canadian economy is highly vulnerable to potential US tariffs, which would weigh heavily on growth.
  • Falling oil prices, potentially driven by US policy, pose another significant risk to the Canadian economy.

• USD/CAD Forecast:

  • Barclays sees USD/CAD rising to 1.43 into 2025, reflecting these macroeconomic divergences and downside risks for the CAD.

Conclusion:

Barclays’ outlook for USD/CAD highlights the impact of diverging monetary policies, trade risks, and oil price vulnerabilities on the pair. As the BoC eases while the Fed remains hawkish, USD/CAD is expected to continue its upward trajectory.