Key Takeaways
- The Canadian dollar is expected to strengthen in 2026 due to optimistic economic data and a more favorable outlook on interest rates in Canada and the United States.
- Analysts predict the loonie to start the new year around 72 cents U.S. and end the year at 75-76 cents U.S.
- A shrinking interest rate differential between U.S. and Canadian rates is expected to boost the loonie, with markets betting on two more rate cuts by the U.S. Federal Reserve in 2026.
- The Canadian economy is expected to gain support from easing at the Fed, with the Bank of Canada indicating it is comfortable with its current benchmark lending rate.
- Trade risks with the U.S. remain a concern for the Canadian dollar, but overall, the outlook for the loonie is positive.
Introduction to the Canadian Dollar’s Outlook
The Canadian dollar spent much of the last half of 2025 unloved, but optimistic economic data and a more favorable outlook on interest rates in Canada and the United States have many analysts calling for the loonie to turn around in 2026. A recent uptick in macro data has seen analysts turn slowly but progressively more positive on the Canadian dollar. Stronger-than-expected job creation in October and November and third-quarter gross domestic product (GDP) of 2.6 per cent annualized, compared with forecasts for 0.5 per cent, have economists reassessing the Canadian economy and the currency.
Economic Data and Interest Rates
Monex Europe Ltd. expects the Canadian dollar to start the new year around 72 cents U.S. and end the year at 75.9 cents U.S. CIBC Fixed Income, Currency and Commodities also expects the Canadian dollar to enter 2026 at 72.5 cents U.S., but exit 2026 around 74 cents U.S. The loonie has been pushed and pulled over the past few weeks but is likely to sustain some positive momentum in 2026. Besides a less dire economic outlook, continued interest rate cuts by the U.S. Federal Reserve should provide more lift to the loonie over the year, especially after the Bank of Canada indicated it is comfortable with its current benchmark lending rate.
Historical Context and Interest Rate Differential
A shrinking interest rate differential between U.S. and Canadian rates has historically helped boost the loonie, and markets are betting the Fed will cut two more times in 2026, after cutting three times this year. The Canadian economy should continue to gain support at the margin from easing at the Fed. The Canadian dollar had a tumultuous 2025, falling to almost a decade-low 68.8 cents U.S. as the threat posed to the Canadian economy by U.S. President Donald Trump’s tariffs began to unfold. From there, the loonie rebounded 7.2 per cent to a high for the year of 73.7 cents U.S. as the greenback fell out of favor.
Analyst Predictions and Trade Risks
Shaun Osborne, chief currency strategist at Bank of Nova Scotia’s global economics and FX strategy, expects the Canadian dollar to finish 2026 at 75.1 cents U.S. Economist David Rosenberg recently reversed his long-held bearish outlook for the Canadian dollar and has a target of 77 cents U.S. for 2027. Karl Schamotta, chief market strategist at Corpay Inc., is calling for the Canadian dollar to enter 2026 at nearly 73 cents U.S. and end the year at 75.8 cents U.S. However, he noted that long-term currency forecasts have a habit of being wrong, citing the example of 12-month euro-U.S. dollar projections that missed the mark by an average of seven cents U.S. from 2007 to 2025 and also got the direction wrong more than half of the time.
Conclusion and Future Outlook
In conclusion, the Canadian dollar is expected to strengthen in 2026 due to optimistic economic data and a more favorable outlook on interest rates in Canada and the United States. While trade risks with the U.S. remain a concern, the overall outlook for the loonie is positive. Analysts predict the loonie to start the new year around 72 cents U.S. and end the year at 75-76 cents U.S. As the Canadian economy continues to gain support from easing at the Fed, the loonie is likely to sustain some positive momentum in 2026. However, it is essential to note that long-term currency forecasts can be wrong, and the actual performance of the loonie may differ from predictions.
