Pension portfolios weigh loonie slump against forecast rebound and shifting oil dynamics
The Canadian dollar is under pressure now, but currency strategists still see it strengthening over the next year as rate differentials and trade risks evolve.
According to a Reuters poll cited by BNN Bloomberg, the median forecast of 38 foreign exchange analysts calls for the loonie to rise to 1.38 per US dollar (72.46 US cents) in three months and 1.35 in 12 months, both firmer than in the previous survey.
BNN Bloomberg reports that TD Securities global FX strategist Jayati Bharadwaj expects “USD-CAD to weaken from the Fed easing interest rates, risk-on sentiment, broad USD weakness and the resolution of USMCA uncertainty by the middle of the year.”
She says those shifts should encourage investors to become more optimistic on the Canadian dollar.
In the near term, the currency is weakening.
Reuters said the loonie has fallen for several sessions in a row, recently trading around 1.3840–1.3865 per US dollar and touching its weakest levels in about a month, as markets react to elevated geopolitical risk and the prospect of more Venezuelan oil heading to the United States.
That oil story matters directly for Canadian assets.
Reuters reported that the Toronto Stock Exchange’s energy sector has dropped about 5.7 percent this week as investors worry that increased Venezuelan exports to the US could hurt Canadian producers selling similar heavy grades.
Oil settled 2 percent lower at US$55.99 a barrel after a US deal to import Venezuelan crude.
Adam Button, chief currency analyst at investingLive, told Reuters that “the market has a hard time pricing in big geopolitical changes and Canada was caught up in that with Venezuela.”
He said he expects “a sober second assessment that shows that Canadian oil is far more competitive, far more stable and not threatened on any medium-term horizon.”
Policy signals are another key piece for long‑term allocators.
BNN Bloomberg reports that the Bank of Canada has signalled a possible end to its easing cycle after cutting its benchmark rate to a three‑year low of 2.25 percent, even as the US Federal Reserve continues to reduce rates.
Investors see roughly a 50 percent chance the Bank of Canada will start tightening by the end of 2026, a shift that could support the loonie if US rates keep drifting lower.
Trade and diversification efforts sit in the background.
Prime Minister Mark Carney has argued Canadian crude is low risk and will remain competitive even if Venezuelan output rises, while committing to spend billions on infrastructure and productivity measures.
Reuters said Carney will visit China from January 13 to 17 as he works to diversify exports away from the United States amid uncertain US trade policy.
The United States‑Mexico‑Canada Agreement, which has shielded much of Canada’s exports from US tariffs, faces a joint review in 2026.
On the macro data front, signals are mixed but manageable.
Reuters said Canada is expected to shed 5,000 jobs in December, with unemployment edging up to 6.6 percent, and quoted Amo Sahota of Klarity FX describing the loonie’s moves as those of “a risk-sensitive currency” in an environment of “elevated geopolitical risk.”
Canada recently posted a smaller‑than‑expected trade deficit and that the share of exports going to the United States fell to its lowest ever non‑pandemic level.
Canadian 10‑year bond yields are hovering near 3.4 percent, according to Reuters, suggesting a cautious but stable rates backdrop as investors weigh short‑term FX weakness against the prospect of a medium‑term recovery in the Canadian dollar.
