National Bank Canada cites weak growth, negative rate spreads, and gold’s 17% drop as key drivers for the Canadian dollar’s underperformance.
The Canadian dollar has fallen to its lowest level among reserve currencies, with USD/CAD rising to 1.39, matching late-March levels. Analysts attribute the decline to Canada’s lagging real growth, a widening negative spread between Canadian and U.S. 2-year yields, and a 17% drop in gold prices from recent highs.
While Canada’s full-time employment remains at record levels, U.S. economic outperformance continues to pressure the loonie. Gold, now a more relevant driver than oil for the currency, has weighed on the CAD as bullion trends downward.
National Bank Canada expects the CAD to stay under pressure near term, revising its year-end USD/CAD target to 1.35. A sustained rally may require progress on U.S.-Canada trade negotiations.