5-Bank Canadian Dollar Forecast - March 2026

The Canadian dollar begins March facing a delicate balance between domestic economic softness and external commodity support.
 

Recent Canadian economic data has pointed to a gradual cooling in growth momentum. Labour market conditions have weakened slightly following several months of strong employment gains in late 2025. At the same time, consumer spending has slowed as higher borrowing costs continue to work through the economy. Inflation has moderated from its earlier peaks but remains close enough to the Bank of Canada’s target range that policymakers remain cautious about easing policy too quickly. As a result, markets continue to debate the timing and pace of potential rate cuts later this year.
 

The Bank of Canada’s policy path remains one of the key drivers of the Canadian dollar, particularly in comparison with the U.S. Federal Reserve. While both central banks are expected to move gradually toward more accommodative policy, the relative pace of easing will determine how the USD/CAD exchange rate evolves through the year.
 

At the same time, global developments are also shaping the currency outlook. Escalating geopolitical tensions in the Middle East have pushed energy prices higher, which historically provides some support for the Canadian dollar given Canada’s role as a major oil exporter.
 

However, geopolitical uncertainty can also increase demand for the U.S. dollar as a safe-haven currency, creating competing forces that can drive short-term volatility in USD/CAD.
 

Another key issue for Canadian markets is the upcoming CUSMA/USMCA trade agreement review, which is expected to begin receiving greater attention later this year. Any signals regarding trade policy between Canada, the United States, and Mexico could have significant implications for investment flows and business confidence.
 

For now, Canadian banks broadly expect the Canadian dollar to gradually strengthen later in 2026, though most forecasts suggest the move will be gradual rather than dramatic

Bank of Canada policy expectations: Interest rate expectations remain one of the most important drivers of currency markets. If inflation continues to ease and economic growth slows further, the Bank of Canada could begin lowering rates later in the year. Markets will be watching upcoming inflation and employment releases closely for signals about when policy easing may begin.
 

US economic resilience: The US economy continues to show resilience compared with many other advanced economies. Strong consumer spending and a stable labour market have supported the US dollar in recent months. If US growth continues to outperform, it could keep USD/CAD elevated even if the Canadian dollar improves modestly.
 

Oil and commodity prices: Oil remains one of the most important external drivers of the Canadian dollar. Rising geopolitical tensions and supply disruptions have pushed crude prices higher in recent weeks. Higher oil prices typically support the Canadian dollar by improving Canada’s terms of trade and strengthening export revenues.
 

Trade policy uncertainty: The review of the CUSMA trade agreement has the potential to introduce uncertainty into Canadian markets later this year. While the review process is expected to be routine, any unexpected policy changes or trade tensions could influence capital flows and currency sentiment.
 

Global geopolitical risk: Conflicts and geopolitical tensions often lead investors to seek safe-haven currencies such as the US dollar. While higher energy prices may support Canada’s export sector, broader global risk aversion can offset these benefits in the currency market.