This has been a year of two very different quarters so far – a strong U.S. dollar in the first quarter and a weak one in the second. Our expectations are for the U.S. dollar weakness to prevail. The U.S.-dollar bear market began just last year and has a few years to run. Currencies move within cycles, from overvalued to undervalued, and the dollar remains rich despite the weakness of the past year. While the early stages of the bear market in the greenback benefits all currencies, it is cyclical currencies, including the Canadian dollar, that benefit most from the global economic recovery underway. 

There is lots to love about the loonie these days: the currency has risen 5% this year and ranks among the world’s best performing currencies in 2021. What makes the Canadian dollar particularly attractive is its exposure to commodities and their link to global economic growth, particularly the strong U.S. recovery.  It is possible, absent another significant jump in commodity prices, that the loonie’s appreciation slows in the near term ahead of the key technical level of C$1.20 per U.S. dollar. On a 12-month horizon, however, we think that the Canadian dollar has room to strengthen, and we are revising our base-case expectation to C$1.15 per U.S. dollar now that our previous forecast has nearly been achieved.

Read the full Global Currency Outlook report here.