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Canadian dollar poised for modest upside vs US dollar amid BoC pause

MUFG links CAD strength to weaker US CPI and higher oil prices, but flags limited upside because Bank of Canada policy is expected to stay on hold with downside risks for CAD tied to current rates pricing.

Reported · Written up by our desk · Major Pairs

The Canadian dollar has gained support against the US dollar, as MUFG cited weaker US consumer price inflation and higher oil prices as factors helping CAD outperform, with FX swap spreads pointing to potential for modest further gains, according to FXStreet.

MUFG also said the Bank of Canada is expected to remain on hold, with policy messaging likely to emphasize a sizeable output gap and mixed macro data rather than a hawkish turn that could push CAD higher.

While the CPI data has reduced support for the US dollar and CAD can benefit from that, MUFG warned that the broader macro backdrop may cap CAD gains tied to crude oil, keeping upside limited.

The notes further point to the market impact of rates expectations, with the firm saying spreads suggest remaining downside risk for CAD even as the US dollar weakens, and that the BoC decision could encourage “patience” that may disappoint current pricing.

Latest closeWTI crude $79.90 ▲2.2%

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