Published: February 25th, 2026
The Canadian dollar could struggle to gain ground in 2026 as structural weaknesses at home and uncertainty abroad leave it exposed, according to fresh analysis from Convera and several global banks.
In a note published this week, Convera warned that the next ten months may prove pivotal for Canada's economy. Analysts pointed to stagnant productivity, a looming wave of mortgage renewals and the risk of further monetary easing by the Bank of Canada, which has paused its rate-cutting cycle at 2.25%. Any renewed easing, they argue, would widen the interest-rate gap with the United States and keep the currency under pressure.
The loonie is already among the weaker performers in the G10 this year. Strategists at Barclays, HSBC and MUFG Bank Ltd cite trade frictions with the United States and uncertainty over the future of the United States-Mexico-Canada Agreement (USMCA) as additional headwinds. Although some expect a weaker U.S. dollar to lend support, most say Canada-specific risks will dominate in the year ahead.
Beneath the currency's drift lies a more fundamental problem. Canada's labour productivity remains roughly 70% of American levels. Convera says that gap has been hard to bridge. For years, investment has gravitated towards housing and other domestic sectors rather than export-oriented industries that tend to drive sustained income growth.
The comparison with the United States is unflattering. South of the border, robust capital expenditure, a deep technology sector and aggressive fiscal stimulus have supported output gains. In Canada, by contrast, real GDP per capita has been largely flat over the past decade even as federal spending has risen briskly, growing by more than 7% annually since 2015.
The result is an economy that appears busier than it is productive. Headline employment gains have often leaned heavily on public-sector hiring. That may steady the ship in the short term, but it does little to raise underlying living standards or to foster the sort of entrepreneurial activity that narrows income gaps.
Currency markets notice such things. A country that persistently underinvests in tradable sectors tends to struggle to generate the export earnings needed to justify a stronger exchange rate.
If productivity is a slow-burning concern, housing is a more immediate one. Canada faces a substantial wave of mortgage renewals over the next two years as loans taken out at ultra-low pandemic-era rates are reset at far higher levels. Many households could see payments rise by 15% or more by the end of 2026.
That squeeze threatens to curb consumption. Anecdotes of “Buy Canada” staycations, Convera suggests, may owe less to patriotic fervour than to thinner wallets. International travel has become a discretionary luxury for many households adjusting to higher debt servicing costs.
Should the housing market wobble, pressure would mount on the Bank of Canada to resume easing. Yet further rate cuts would widen the yield differential with the United States, where policy has remained tighter for longer. A larger gap typically draws capital towards the higher-yielding market.
Even if housing risks do fade, geopolitics are likely to intrude. The Canadian dollar has underperformed other commodity-linked currencies this year despite broadly supportive raw-material prices. That suggests deeper troubles.
Barclays points to persistent friction with Washington. Although President Donald Trump has moderated some tariff rhetoric, markets remain uneasy about his stance towards North American trade. His ambivalence over the renewal of USMCA has resurfaced just as the agreement approaches a scheduled joint review, due to begin around July 1st.
HSBC warns that uncertainty surrounding the agreement could prompt bouts of selling in the loonie. MUFG echoes the concern, arguing that any explicit threat to withdraw from USMCA would pose clear downside risk. For a country whose economy is tightly intertwined with that of its southern neighbour, such risks are hard to ignore. No other advanced economy depends so heavily on access to the American market.
Recent legal developments have added to the haze. America's Supreme Court struck down a cornerstone of Mr Trump's tariff regime, including measures that had covered so-called “fentanyl” tariffs on Canada, China and Mexico. In theory, that ought to have relieved pressure on the loonie.
In practice, markets suspect that alternative measures may follow. Investors have learned that trade policy can mutate quickly. Each new legal or political turn risks prolonging uncertainty rather than dispelling it.
Sterling's movements against the Canadian dollar illustrate the point. The pound–loonie exchange rate has swung sharply in recent weeks, reflecting not just British developments but the ebb and flow of North American trade headlines. Currency traders, it seems, are pricing politics as much as economics.
Taken together, these forces leave the Canadian dollar confined to what Convera calls a defensive range. The firm's analysts see a year of steady but uninspiring growth, a sort of stable stagnation.
For the loonie to break out convincingly, two conditions would help. First, a clearer and more durable trade settlement with the United States would reduce geopolitical risk premia. Second, a sustained improvement in productivity would bolster Canada's growth potential and narrow the prosperity gap with America.
Both are easier described than achieved. Trade negotiations are hostage to electoral cycles and political calculation. Productivity gains require patient capital, regulatory reform and a reorientation of investment towards higher-value sectors.
In the meantime, CAD is caught in a structural bind. Canada would benefit from a narrower interest-rate gap to support appreciation. Yet stronger rates risk aggravating housing strains, while lower rates threaten to weaken the exchange rate further.
Commodity prices and a softer U.S. dollar may offer episodic relief. Some strategists expect 2026 to mark a turning point as domestic factors exert greater influence and tariff anxieties fade. But optimism rests on the assumption that shocks are avoided and reforms gather pace.
For now, caution prevails. The Canadian dollar is neither collapsing nor surging. It is hemmed in by modest growth, wary households and unpredictable trade politics. Unless Canada can revive its productive engine and secure calmer relations with its largest trading partner, the CAD's uphill battle looks set to continue.
