According to the bank, the Canadian dollar’s recent softness has been driven by fundamental factors, primarily the two rate cuts delivered by the Bank of Canada in September and October. With these adjustments now behind us, Scotiabank believes Canada’s monetary stance is much closer to neutral, while additional fiscal support outlined in the Federal Budget should help reinforce domestic economic momentum.
Looking forward, Scotiabank expects the policy gap between the Federal Reserve and the Bank of Canada to narrow steadily, creating a sustained downside trend for USD/CAD throughout the forecast horizon.
The bank notes that early next year, seasonal dynamics could still offer temporary support to the US dollar, but by Q2 2026, these seasonal patterns are expected to reverse in favour of the Canadian dollar.
Scotiabank’s baseline scenario assumes that USD/CAD will remain close to 1.40 through late 2025, before gradually edging lower as the rate differential continues to compress.
Throughout 2026, the pair is projected to move toward 1.33, with further Canadian dollar appreciation potentially driving USD/CAD down to around 1.30 by the end of 2027. This outlook reflects expectations of firmer Canadian fundamentals and a more balanced policy environment.
Overall, Scotiabank maintains a bearish long-term view on USD/CAD, arguing that structural forces increasingly favour a stronger Canadian dollar rather than prolonged US dollar strength.
Current USD/CAD rate: 1.4039