CAD Fair Value Report

1.3900 - 1.4100 with moderately bearish pressure

The USDCAD has a fair value of 1.3900 - 1.4100 and is expected to see a moderately bearish influence upon its fair value during the upcoming seven weeks.

Here’s a look at what’s going on with the Canadian dollar, the ever-important oil market, and the USDCAD currency pair. Things have been pretty wild lately, mostly driven by unpredictable US trade policy moves and the economic jitters spreading globally because of them. Since Canada’s economy is tightly linked with the US, it’s been a tricky period dealing with tariffs flying back and forth and everyone trying to guess what central banks will do next. While decisions by the Bank of Canada and local economic numbers definitely mattered, the bigger picture was really dominated by trade tensions and how investors around the world were feeling about risk. On top of that, oil prices doing their usual up-and-down thing added another layer of complexity.

Looking out over the next seven weeks or so, the direction things head will likely depend on four main things. First, the trade talks between Canada and the US, which kicked off after Prime Minister Carney's election, are really crucial; if they make progress, it could give the Canadian dollar a good boost, but if things get stuck, we could see pressure return. Second, what the Bank of Canada does next, especially their decision on June 4th, will be key. They'll be watching the incoming economic stats closely, especially with all the trade uncertainty hanging overhead. Third, keep an eye on Canada's own economic reports – things like Q1 GDP, job numbers, and inflation – because they’ll show us how hard the recent trade issues have actually hit. And fourth, the general mood in global markets, largely affected by US-China relations and overall growth worries, along with oil price trends, will continue to have a big impact on the Canadian dollar, which often moves with global risk sentiment.

Pillars of Government: Policy and Priorities

Canada has a type of government that's a mix – it's both a constitutional monarchy and a parliamentary democracy, pretty similar to the UK's system. The power to make laws rests with Parliament, which has two parts: the Senate (whose members are appointed) and the House of Commons (where members are elected). Running the country and putting those laws into action is the job of the Prime Minister and their Cabinet. They need to keep the support of the elected House of Commons to stay in charge. Lastly, there's a separate court system that figures out what the laws actually mean.

Leadership and Agenda: The Carney Administration

Alright, so the election finished up on April 29th, 2025, and Mark Carney with the Liberals is now heading up a minority government. You probably know the name – he was the boss at both the Bank of Canada and the Bank of England. Some of the key people in his cabinet include François-Philippe Champagne, who's got the Finance portfolio, and Jonathan Wilkinson, looking after Energy and Natural Resources. Their main priority seems to be navigating trade issues with the US, making sure the Canadian economy stays healthy and independent. When it comes to spending, the general idea is 'cut back on day-to-day costs but keep investing.' They're shooting to get operational spending balanced in the next three years or so, while still planning to borrow for major projects. They also nixed that planned increase to the capital gains tax. On the trade front, they're focused heavily on talks with the States but are also looking to build more trade relationships elsewhere. Energy policy looks like a balancing act between developing resources and meeting climate goals – a big piece of this is getting rid of the carbon tax for everyday people, though the pricing system for industries isn't going anywhere. Other big things on their radar include defence, housing, and working with Indigenous groups.

Recent Governmental Crosscurrents

Things have been pretty eventful here lately, especially between mid-March and early May. The two big things dominating the news were the trade disagreement with the US really heating up and, of course, the change in government. When the US brought in tariffs, Canada responded with its own tariffs and also tried to cushion the blow domestically with things like tax deferrals and better Employment Insurance. Still, confidence among businesses and consumers took a real hit, and the markets were pretty unstable. Also, that federal carbon tax for consumers? That was scrapped on April 1st. Around the same time, back in March, most provinces released their budgets, and many were forecasting deficits, showing just how tricky the economic situation was, partly because they were trying to prepare for the impact of the tariffs.

Horizon Scan: Government Actions Ahead

Looking ahead, what happens in the next few weeks really hangs on how those trade talks with the US turn out. They got started after Prime Minister Carney met the US President in early May. We should get a much clearer picture of the new government's priorities on May 27th during the Speech from the Throne – that’s when they'll outline their plans for new laws, including their thinking on spending and energy. Expect a budget or at least some kind of financial update soon after that. Parliament will be back in session in late May. On top of all this, Canada is hosting some important international meetings: the G7 Finance Ministers from May 20th to 22nd, and then the G7 Leaders' Summit from June 15th to 17th. These meetings will be key places to talk about global trade and keeping the world economy stable.

Guardians of Stability: The Bank of Canada

So, you've got the Bank of Canada (BoC) – that's Canada's central bank. It's what they call a Crown corporation, meaning the government owns it, but when it comes to deciding on things like interest rates (that's monetary policy), the BoC operates on its own.

How's it structured? There's a Board of Directors looking after the bank's business side. Then there's the Governing Council, with Governor Tiff Macklem in charge, and they're the ones making the crucial decisions about monetary policy.

What's their main job? It really boils down to keeping Canada's economy and financial system running well. A big focus is controlling inflation, trying to keep it right around a 2 percent target (though they give themselves a little leeway, aiming for somewhere between 1 and 3 percent). Since 2021, they've also got the goal of helping employment get as high as it reasonably can, but that's provided people are confident inflation will stay near the target. On top of that, making sure the country's financial system stays stable is another key responsibility.

Recent Central Bank Actions and Market Reactions

Recently, from mid-March to early May, what the BoC did was largely driven by that trade spat with the US. They had been cutting interest rates earlier in the year, but on April 16th, they decided to hold off on further cuts, keeping their main interest rate steady at 2.75 percent. They pointed to all the uncertainty coming from the US tariffs as the reason. They were seeing mixed signals – the Canadian economy seemed to be slowing down, but underlying inflation was still sticking close to 3 percent. By holding the rate steady, even though the economy faced risks, the Bank seemed to be playing it cautious and prioritizing getting inflation under control during the trade uncertainty.

Upcoming Central Bank Milestones

Looking ahead, keep an eye out for a few things from the BoC. They put out their Financial Stability Report on May 8th, which talked about potential risks to the system because of the trade issues. The next interest rate announcement is on June 4th. Lots of folks think they might cut the rate then, but it really depends on how the trade talks progress and what the latest numbers show (like April's inflation figures coming May 20th, and April's job numbers that came out May 9th). We'll get more insight into their thinking when they release the summary of their deliberations on June 18th. Also worth watching is Governor Macklem's involvement in the G7 meetings between May 20th and 22nd.

Engine Room: The Canadian Economy

Canada has a pretty big, modern economy – we're talking around $2.33 trillion US dollars. A huge part of that hinges on trade, especially with the United States, thanks largely to the USMCA agreement.

Services actually make up most of the economy, about 70%. But manufacturing (around 10%) and our natural resources – things like oil, gas, and mining which are over 8% – are still super important, particularly for the stuff we sell to other countries. It's pretty striking that about three-quarters of everything Canada exports goes straight to the US, and roughly half of our imports come from them.

So what are they selling? The big things are energy products, cars and auto parts, minerals, machinery, and lumber. If you look at the stock market, the TSX, you'll notice it’s heavily pushed by the big financial players like RBC, TD, and BMO, along with major resource companies like Enbridge and CNQ.

And the Canadian dollar? Its value floats pretty freely. Usually, it moves around based on oil prices, what the US decides to do with interest rates, and just the general vibe among investors.

Recent Economic Pulse and Market Tremors

After strong Q4 2024 growth (+0.6 percent QoQ), momentum stalled in early 2025. February GDP contracted (-0.2 percent MoM), and the March advance estimate was marginal (+0.1 percent), indicating a Q1 slowdown linked to trade uncertainty. March CPI eased (2.3 percent) but core measures remained sticky (~2.8-2.9 percent). The labour market weakened (March -33k jobs, unemployment 6.7 percent). The trade balance swung to deficit in February. Business and consumer confidence collapsed. Oil prices weakened through April on demand fears. The TSX saw volatility but rallied late April/early May on global trade optimism.

Economic Calendar: Navigating the Weeks Ahead

Crucial data includes April Labour Force (May 9), April CPI (May 20), Q1 GDP (May 30), May Labour Force (June 6), and May CPI (June 18). These releases will gauge the trade war's impact and inform the BoC's June 4th decision. Continued weakness would bolster easing expectations. Oil price trends and US economic developments remain critical external influences.

Global Currents: Geopolitics, Capital Flows, and Risk

Canada's Place in a Shifting World

When you think about Canada's spot in the world, its part of the G7 and seen as a kind of 'middle power.' Historically, they have always been big on working together with other countries and being part of Western alliances like NATO and the Five Eyes intelligence group. Its reputation benefits a lot from being stable and democratic. But there are some big challenges – like more countries focused only on themselves (protectionism) and the major world powers competing more intensely. Being so closely linked economically to the US also means changes in their policies can have a big effect. A good amount of investment is attracted from other countries, mostly from the US, but there are ongoing worries about the competitive edge. Plus, the flow of investment money can be pretty unpredictable. The biggest worries right now? Definitely the trade situation with the US, along with high levels of household debt, issues in the housing market, low productivity, the risk of the economy getting stuck with slow growth and rising prices (stagflation), political uncertainty, the impacts of climate change, and cyber security threats.

Recent Geopolitical and Risk Developments

From mid-March to early May, pretty much everything revolved around the trade conflict with the US. When they put tariffs on, it really ramped up the risks, both economically and in terms of international relations. Confidence just fell off a cliff. Early numbers for 2025 showed that investors were actually pulling more money out of Canadian stocks than putting in, probably because they were nervous. On top of that, what was happening globally, like in Ukraine and the Middle East, also had an effect on energy prices.

Forward Horizon: Geopolitical and Risk Factors

Looking ahead, how those trade talks with the US end up is absolutely crucial. The G7 meeting that Canada's hosting from June 15th to 17th is also really important – it’ll be a key chance for leaders to hopefully agree on ways to handle global trade and keep things stable. We also got the Bank of Canada's Financial Stability Report on May 8th, giving their latest take on the risks. We'll be keeping an eye on whether investors start bringing money back in, as that will show if confidence is returning. Other things to watch are how stable things feel politically after the government outlines its plans in the Throne Speech on May 27th, and environmental worries like the upcoming wildfire season.

Currency Crossroads: USDCAD

It looks like 1.3800 became a pretty solid floor back in late April and early May 2025, as buyers kept stepping in whenever the price dropped near there.

Going the other way, 1.4500 proved to be a tough ceiling. Around late December 2024 and into January 2025, the pair repeatedly failed to stay above that level, making it a clear resistance spot.

What drove the price up towards 1.4500 late last year/early this year? Well, a lot of it was traders around the world getting nervous (fears about US tariffs made the US dollar look like a safe place to park cash). At the same time, the Canadian dollar was taking a hit from trade threats, and the difference between Canadian and US interest rates was growing (the Bank of Canada was easing things up while the Fed was playing it cautious).

Looking ahead over the next seven weeks or so, a fair price for USDCAD seems likely to be somewhere in the 1.3900 to 1.4100 range. That's based on it hovering around 1.3800-1.3900 lately, plus the fact that trade issues are still very uncertain, economic numbers are a bit mixed, oil prices are jumpy, and nobody's quite sure what the central banks will do next.

Concluding Thoughts

Looks like the Canadian dollar and related markets are really at a turning point. The wild swings we've seen lately just go to show how much everything reacts to global events, particularly anything to do with trade policy. Canada's own economy has had its strong spots, sure, but it's really the outside world that's setting the tone and direction right now. If you're trading currencies, you've got to keep a close eye on how those Canada-US talks are progressing, watch for hints from the Bank of Canada (especially how they stack up against the US Fed), and pay attention to the key economic reports coming out of Canada. What's kind of surprising is how the CAD has held up sometimes, even when some Canadian numbers look a bit worrying. It really highlights how complex things are in the market these days. Because of all this uncertainty with the USDCAD pair, being able to react quickly and keeping a lid on risk is crucial. Any big shift in trade mood or unexpected economic data could cause the exchange rate to move sharply and suddenly.