Published: January 21st, 2026
Canada's Dollar enters 2026 undervalued and hostage to headlines. For the Loonie that's familiar territory, yet on balance, the forces shaping its trajectory looks less dire than recent signals suggest.
Canada's Desjardins Bank and global payments firm Corpay both believe CAD's recent weakness reflects temporary disturbances rather than a lasting shift in fundamentals.
For much of the past year, Canada's currency has been weighed down by uncertainty about trade, politics and growth. If that uncertainty fades, even partially, the Loonie could recover lost ground.
Desjardins expects the Canadian dollar to strengthen against most major currencies over the next six months, even if the journey is uneven. Its central forecast is for USD/CAD to drift lower once early-year volatility subsides, with a revised year-end 2026 target of 1.34 and a fall below 1.30 pencilled in by the end of 2027.
The bank's analysts say the recent pullback is best understood as a pause rather than a reversal. The loonie rallied late last year as forward markets priced a narrowing in interest-rate differentials, only to surrender some gains in the new year. That retracement reflected renewed anxiety about oil markets, domestic growth and trade politics, rather than a deterioration in Canada's relative position.
What markets are witnessing, Desjardins suggests, is an extended tug of war between fundamentals and political noise. In 2026, the noise may dominate specific periods, but CAD's fundamentals remain intact.
Energy markets sit at the heart of that assessment. Fears of a North American oil glut, driven by rising supply south of the border, have weighed on sentiment toward the currency. Desjardins thinks those concerns are overstated.
Western Canadian Select prices may face pressure if Venezuelan crude is redirected toward American refineries. But Canada's export profile is changing. Crude shipped through the expanded Trans Mountain pipeline now reaches Asian buyers, including Chinese refineries willing to pay a premium relative to traditional benchmarks. At the same time, liquefied natural gas exports to the Asia-Pacific region are set to rise as the LNG Canada project ramps toward full capacity.
Resilience through diversification is the bigger game. Canada's energy sector is becoming less dependent on a single customer and a single pricing structure. That shift, combined with a growing political consensus around investing in east – west energy corridors, reduces exposure to US bottlenecks and policy whims, an underappreciated support for the currency.
Trade policy, however, remains the dominant variable. Desjardins expects volatility to persist through the first quarter as investors react to headlines ahead of the July review of the Canada-USA – Mexico Agreement (CUSMA). Beyond that point, clearer signals could lift confidence and unlock delayed business investment.
There is also a more mechanical tailwind. As U.S. interest rates fall, the cost of hedging foreign currency exposure declines. Desjardins expects Canadian asset managers to raise their foreign-exchange hedge ratios accordingly, increasing demand for the domestic currency at the margin.
It is not a dramatic force, but in thin markets, marginal flows matter more. Gains will come, Desjardins says, but not in a straight line. In an environment shaped by algorithmic trading and political spectacle, patience may be the most valuable asset.
Corpay's assessment is more guarded, though not wholly pessimistic. The firm's analysts believe that the Canadian dollar is fundamentally undervalued and that some of this mispricing could unwind over the year. But it places greater emphasis on the structural uncertainty suppressing that adjustment.
In Corpay's view, 2026 is another year of adaptation to a changed global environment. Business investment and job creation have been weak since Donald Trump's renewed focus on Canada, compounding an existing slowdown in real estate and forcing what the firm describes as a painful transition in the economy's structure.
Monetary policy, unusually, is not expected to play a starring role. With the Bank of Canada having cut rates toward the lower end of its neutral range, it has little appetite to stimulate further. Recent communications suggest policymakers believe the current stance is “about the right level”, given persistent inflation pressures and high household leverage. Rate differentials, then, are unlikely to rescue the loonie.
Instead, Corpay sees trade uncertainty as the principal source of volatility – particularly in the months leading up to July's joint USMCA review.
That uncertainty has a familiar author. Mr Trump's fondness for maximalist rhetoric injects periodic stress into currency markets, even when policy outcomes remain unchanged. With roughly 90% of Canadian exports compliant with USMCA rules, any suggestion of unwinding the agreement would be consequential for the exchange rate.
Yet Corpay argues that the downside risks may be less durable than the headlines imply. Actual tariff rates remain low, and pushing through materially higher import taxes on American households would require congressional backing that may be difficult to secure ahead of the 2026 mid-term elections. Political theatre, in other words, does not always translate into economic reality.
There are also tentative signs of domestic resilience. Real-estate markets appear to be stabilising, labour conditions are tightening at the margins, and measures of business and consumer confidence are improving as fiscal stimulus feeds through. These are not signals of boom, but they don't signal collapse either.
The result, Corpay says, is that CAD may recover some ground, could stumble again if fresh anxieties surface.
All this leaves the Canadian dollar in a peculiarly modern bind. It is buffeted less by macroeconomic imbalance than by uncertainty fatigue. Its energy exports are increasingly diversified and its monetary policy broadly aligned with peers. Yet its fate hinges on politics and narrative ‘noise’.
Desjardins and Corpay disagree on emphasis, but not on diagnosis. Uncertainty is the loonie's chief adversary. Remove some of it through clearer trade signals, calmer rhetoric or simple passage of time, and CAD is likely to strengthen. Leave it unresolved, and volatility will persist.
