This comprehensive article delves into the intricacies of the USD to CAD exchange rate, exploring the factors that may influence its trajectory in 2024, 2025, and beyond. From economic outlooks to key market drivers, this article provides valuable insights for traders navigating the complexities of currency trading.
The Canadian Dollar's Recent Performance
Over the past several years, the USD/CAD exchange rate has experienced a variety of shifts, reflecting broader economic trends and specific events in both the United States and Canada. To see how the pair’s movements have unfolded over the years, head over to FXOpen’s free TickTrader platform to interact with live USD/CAD charts.
Indicative pricing only
Throughout 2019, the USD/CAD exchange rate remained relatively stable, fluctuating between 1.35 and 1.30. This period was marked by heightened trade tensions between the US and its key trading partners, primarily China, which had a ripple effect on the pair due to both the US and Canada's significant trade relationships.
The onset of the COVID-19 pandemic in early 2020 brought unprecedented volatility to global financial markets, including the USD/CAD pair. Initially, the CAD weakened significantly against the USD as investors sought safety in the US dollar, which is considered a so-called global safe haven.
Simultaneously, oil prices—one of CAD’s key drivers—fell sharply, leading the pair to reach a high of 1.46 in March. However, as the year progressed, the CAD recovered some of its losses as commodity prices, particularly oil, began to stabilise. USD/CAD closed in 2020 at 1.27.
The year 2021 initially saw a strengthening of the Canadian dollar, driven by the recovery in oil prices and a general improvement in global economic conditions. This recovery was supported by aggressive expansionary fiscal and monetary policies that helped to stabilise economies and boost demand for commodities, helping CAD climb higher. The pair reached a multi-year low of around 1.20 in June, before retracing to close the year at around 1.26.
Throughout 2022, the Canadian dollar generally weakened against the dollar, influenced by fluctuating oil prices and changing market sentiments about the pace of economic recovery. Most importantly, both the Bank of Canada (BoC) and the Federal Reserve began to hike interest rates in March 2022, which coincided with a peak in oil prices. A decline in oil throughout the rest of 2022 drove CAD lower, with USD/CAD closing 2022 at around 1.35.
In 2023, the pair experienced minor fluctuations, ranging between around 1.31 and 1.39. Inflation began to fall sharply in both economies, though still with some persistence. Commodity prices began to rise in the second half of the year amid general optimism around the state of the global economy and potential Fed rate cuts, benefiting the Canadian dollar.
As we moved into early 2024, the dynamics of the USD/CAD exchange began to reflect diverging monetary policies. A robust US economy led to concerns that the Federal Reserve might maintain higher interest rates for a prolonged period.
In contrast, falling inflation rates in Canada led market participants to anticipate that the Bank of Canada might lower interest rates sooner than the Federal Reserve. This expectation contributed to a softer stance on the CAD relative to the USD. The pair opened 2024 at 1.32, closing the first quarter at 1.35.
Canadian Economic Outlook for 2024
The economic outlook for Canada in 2024 is characterised by modest growth and an easing inflationary environment.
After a stagnant second half in 2023, the Canadian economy is anticipated to experience a rebound, with estimated GDP growth stabilising around 1.5% on an annual average basis, according to the Bank of Canada. This growth is supported by strong population increases due to robust immigration, which helps mitigate some underlying productivity challenges.
Inflation, which has been a pivotal concern for policymakers, shows signs of easing. The Consumer Price Index (CPI) fell to 2.9% year-over-year in March, with core inflation measures also declining to around 2%. These figures indicate that the Bank of Canada's efforts to temper inflationary pressures are beginning to yield results, albeit slowly, as underlying price pressures are still adjusting towards normalisation.
Monetary policy is expected to see significant adjustments with upcoming interest rate cuts. After maintaining a steady rate of 5% since July 2023, economic conditions have set the stage for a more accommodative monetary stance. The Bank of Canada is expected to implement a 25 basis-point cut in June, followed by additional cuts totalling 50 basis points in the latter half of the year, as per S&P Global. This shift is driven by the need to stimulate economic growth and support the gradual recovery process.
Furthermore, government spending is projected to increase, with a growth rate rising from 2.5% in the latter half of 2023 to about 3.5% in the first half of 2024 (Bank of Canada). This increase is partly fueled by the return to work of Quebec public sector workers and new budget measures set to commence in the second quarter.
Overall, while the growth forecast for 2024 is conservative, the economic outlook is cautiously optimistic, supported by policy adjustments and a gradually improving macroeconomic environment.
US Economic Outlook 2024
The US economic outlook for 2024 projects a year of continued growth tempered by cautious monetary policy adjustments. The economy has shown resilience, with a solid expansion pace. The GDP growth moderated from a robust 3.4% in the last quarter of the previous year to 1.6% in the first quarter of 2024 (S&P Global). However, according to the Federal Reserve, the underlying demand remains strong, as reflected by the Private Domestic Final Purchases (an indicator of consumer and business spending), which grew at 3.1% in the first quarter.
Employment figures remain robust, with job gains averaging 276,000 per month in the first quarter and an unemployment rate consistently low at 3.8%. This labour market strength underscores ongoing economic vitality despite higher interest rates impacting sectors like housing and equipment investment.
Inflation presents a complex picture; it has decelerated significantly yet remains above the Federal Reserve's 2% target. As of March, total Personal Consumption Expenditures (PCE) prices have risen by 2.7% year-over-year, with core PCE at 2.8%. This persistent inflation underscores the Federal Reserve's cautious stance on monetary policy. The Fed maintains the federal funds rate at 5.25-5.50%, with the central bank stating the need for further evidence of inflation nearing the 2% target before considering rate adjustments.
Given the strong economy and persistent inflation, the Federal Reserve's stance on interest rates remains conservative. The expectation for the year leans towards maintaining higher rates longer than anticipated, with the first rate cut possibly not occurring until September or even later. This decision aligns with ongoing inflation concerns and the need to ensure economic stability.
Analytical USD to CAD Forecast 2024
Analytical USD to CAD exchange rate forecasts in 2024 predict the pair will be shaped by contrasting monetary policies and economic performances in the United States and Canada.
The Federal Reserve's cautious stance on rate cuts reflects ongoing inflation concerns and a strong labour market, suggesting a high-for-long rate scenario which could underpin the USD's strength. Conversely, the Bank of Canada is anticipated to initiate rate cuts as early as June, with at least a 75 basis point reduction expected in 2024, reflecting weaker inflationary pressures and a less robust economic recovery in Canada.
This divergence in monetary policy is seen as potentially creating a scenario where the USD remains strong against the CAD, maintaining well-worn trading ranges but with potential spikes driven by US economic resilience and Canadian economic softness. Additionally, geopolitical tensions and commodity price fluctuations, particularly in crude oil, may influence the currency pair, adding layers of volatility and unpredictability.
The general consensus is that the USD/CAD pair will exhibit volatility, with the USD generally holding a stronger position throughout 2024, reflecting the broader economic and policy discrepancies between the two nations.
US Dollar/Canadian Dollar Forecasts for 2024
Bank-Based
Q2 2024:
- Most Bullish Bank Projection: 1.39 (Wells Fargo, Trading Economics)
- Most Bearish Bank Projection: 2024: 1.34 (ING)
Q3 2024:
- Most Bullish Bank Projection: 1.40 (Wells Fargo)
- Most Bearish Bank Projection: 1.32 (ING)
Q4 2024:
- Most Bullish Bank Projection: 1.40 (Citibank, Trading Economics)
- Most Bearish Bank Projection: 1.32 (ING)
Trading Economics isn’t a bank but uses manual analysis to provide price predictions.
Algorithm-Based
Q2 2024:
- Most Bullish Algorithm-Based Projection: 1.381 (Financial Forecast Center)
- Most Bearish Algorithm-Based Projection: 1.353 (ExchangeRates)
Q3 2024:
- Most Bullish Algorithm-Based Projection: 1.438 (Gov Capital)
- Most Bearish Algorithm-Based Projection: 1.335 (ExchangeRates)
Q4 2024:
- Most Bullish Algorithm-Based Projection: 1.428 (Gov Capital)
- Most Bearish Algorithm-Based Projection:1.291 (Financial Forecast Center)
Analytical USD to CAD Forecasts for 2025 and Beyond
Looking towards 2025 and beyond, the analytical USD to CAD predictions see the pair as reflecting broader shifts in both the US and Canadian economic landscapes.
For Canada, real GDP growth is anticipated to strengthen to 1.8% by 2025 (OECD Economic Outlook), underpinned by improved global economic conditions, a boost from immigration, and the effects of monetary policy easing. However, growth is expected to remain below long-term trends, with the Bank of Canada likely to continue its trajectory of policy rate cuts, potentially totalling a 150 basis-point decline by the end of 2025.
In contrast, the US economic outlook suggests a more robust scenario, with real GDP projected to grow by 2.6% in 2024, easing slightly to 1.8% in 2025, according to the OECD Economic Outlook. This growth is supported by strong labour market conditions and consumer spending, with the Federal Reserve's policy adjustments playing a critical role.
The Fed is expected to continue easing monetary policy from its projected 2024 cuts. However, the strength of the US economy and lingering inflation are seen as a threat, given that it may delay interest rate cuts in 2025.
This divergence in monetary policy is expected to potentially give the USD a higher yield advantage over the CAD, strengthening USD to CAD in 2025. Additionally, global economic conditions, particularly trade relationships and commodity prices, will continue influencing the currency pair.
If the US demonstrates sustained economic resilience and higher interest rates compared to Canada, analysts project the USD could maintain or even extend its strength against the CAD. Conversely, if the US begins to cut interest rates aggressively in 2025, the CAD is predicted to gain ground against the USD.
USD/CAD Forecasts for 2025
Q1 2025:
- Most Bullish Projection: 1.41 (Trading Economics, WalletInvestor)
- Most Bearish Projection: 1.32 (ING)
Q2 2025:
- Most Bullish Projection: 1.401 (WalletInvestor)
- Most Bearish Projection: 2024: 1.305 (Exchange Rates)
Q3 2025:
- Most Bullish Projection: 1.404 (WalletInvestor)
- Most Bearish Projection: 1.30 (Exchange Rates)
Q4 2025:
- Most Bullish Projection: 1.432 (WalletInvestor)
- Most Bearish Projection: 1.288 (Exchange Rates)
USD/CAD Forecasts for 2026
USD/CAD Forecasts for 2027
USD/CAD Forecasts for 2028
General Factors Influencing the USD/CAD Pair
The US Dollar/Canadian Dollar pair is influenced by a variety of factors ranging from economic indicators to geopolitical events. Here are some key elements that traders and investors consider when analysing the potential movements of USD/CAD:
- Commodity Prices: As a commodity-driven economy, Canada's currency often fluctuates with changes in the prices of key exports, notably oil. Higher commodity prices typically boost the CAD.
- Interest Rate Differentials: The difference in interest rates set by the Bank of Canada and other major central banks, particularly the Federal Reserve, significantly affects the CAD. Rate hikes typically strengthen the CAD, while cuts can weaken it.
- Trade Relationships: The US is Canada's largest trading partner. Thus, trade policies and economic health between these two nations can heavily impact the pair’s value.
- Geopolitical Stability: Global uncertainties, including geopolitical conflicts or economic crises, can cause fluctuations in USD/CAD as investors seek safety in the US dollar.
- Economic Indicators: Domestic economic performance, including GDP growth, employment rates, and inflation, plays a crucial role in shaping the strength and stability of domestic currencies.
The Bottom Line
Understanding the factors that impact the USD to CAD exchange rate is crucial for any trader looking to capitalise on this pair. Your analysis offers a roadmap for navigating the complexities of the forex market in the coming years. To take full advantage of these insights and actively participate in the USD/CAD market, consider opening an account with FXOpen to access a wealth of advanced trading tools and resources.
FAQs
Will the Canadian Dollar Get Stronger in 2024?
Analytical CAD forecasts see it face challenges in 2024, primarily due to anticipated interest rate cuts by the Bank of Canada in response to lower inflation. However, strong immigration and government spending are projected to provide some support.
Will the Canadian Dollar Get Stronger in the Future?
Analysts project that the Canadian Dollar may strengthen in the long term as global economic conditions improve and domestic policies potentially stabilise the economy. However, it’s expected to remain weaker relative to the US Dollar in the near future.
What Will the US Dollar to Canadian Dollar Be in 2025?
According to analysts, in 2025, the USD to CAD exchange rate will reflect a narrowing interest rate differential between the US and Canada, with the Bank of Canada's continued rate cuts and a projected easing by the Fed influencing the rate.
What Is the Canadian Dollar Forecast for the Next 5 Years?
Over the next five years, the Canadian Dollar may see varying strength as it responds to shifts in commodity prices, trade dynamics, and domestic economic policies.
Will CAD Ever Be Equal to USD?
Given the current analytical forecasts and the fundamental differences between the two economies, it is highly unlikely that the CAD will reach parity with the USD in the foreseeable future.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
