BofA sees limited relief rally for Canadian dollar

Investing.com -- Bank of America expects the USD/CADCanadian Dollar’s recent relief rally to be short-lived, with ongoing trade tensions and broader market uncertainty weighing on the currency. BofA expects USD/CAD to be above 1.45 in the near term.

“We believe the rally is unlikely to sustain as our economists expect US tariffs threats and headlines on Canada to persist until a new USMCA deal is negotiated,” analyst at BofA said.

While a delay in U.S. tariffs on Canada initially provided a boost to the Loonie, BofA believes tariff threats will persist until a new free trade deal is negotiated. The Canadian dollar has been the worst-performing G10 currency in trade-weighted terms this year, and risk-off sentiment is now a bigger driver of USD/CAD moves than interest rate differentials.

BofA also pointed out that despite market volatility surrounding U.S.-Canada trade tensions, broader FX markets have not experienced a full risk-off shock. It expects pressure on the loonie to continue in the coming months but sees a more constructive outlook in the second half of 2025, as Canada’s domestic economy recovers and trade-related uncertainties ease.

The bank maintains a long-term USD/CAD target of 1.35.

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