Published: June 17th, 2026
The Canadian dollar may be on the verge of a rebound. Stronger-than-expected jobs data have prompted Scotiabank to argue that CAD could stabilize in the near term, with longer-term valuations pointing to recovery.
A note from the bank's FX Strategy Unit argues that the Loonie is likely to strengthen after a prolonged period of weakness, citing recent labour-market figures that suggest Canada's economy retains more resilience than many investors had assumed.
Canada added 87,800 jobs in May, beating expectations for around 10,000. The result followed a string of disappointing releases and a period of weak growth that pushed the country into a technical recession earlier this year.
"The CAD outlook has been gloomy over the past few weeks, but solid employment gains in May support the notion that the Canadian economy is regaining momentum after a soft start to the year," Scotiabank said.
The Loonie's recent record hardly inspires confidence. It fell 1.57% against the US Dollar in May and has weakened further in June. The pattern is visible across major currency pairs. Against Sterling, the Canadian dollar is on course for a fourth consecutive monthly decline, while the Euro has also gained ground.
That weakness reflects a broader deterioration in perceptions of the Canadian economy. Growth has disappointed, business confidence has softened and investors have increasingly favoured the relative strength of the United States.
Yet currency markets often move beyond fundamentals. When pessimism becomes entrenched, exchange rates can overshoot. Scotiabank argues the currency appears inexpensive by historical standards.
According to the bank's equilibrium models, the Canadian dollar is trading below levels implied by longer-run fundamentals. Those valuation measures had been falling alongside the currency in recent months, but are now showing tentative signs of turning higher.
The bank also notes that the Greenback, while still technically strong, has enjoyed a powerful rally that appears increasingly stretched.
The difficulty for Canadian Dollar bulls is that currencies rarely trade on domestic factors alone. Canada remains one of the world's largest exporters of oil and natural gas, leaving the currency unusually sensitive to shifts in energy markets. That relationship has reasserted itself in recent days as oil prices have fallen sharply.
Growing optimism that tensions in the Middle East could ease is part of the picture. Reports that the United States and Iran may move towards a formal framework agreement have fuelled expectations that energy exports from the region could increase.
For oil-importing economies, lower prices are generally welcome. For Canada, the picture is more complicated. Higher oil prices tend to improve Canada's terms of trade and support national income. Falling prices reverse some of those benefits. If energy markets remain under pressure, they could limit any recovery in the Canadian dollar even if domestic economic data improve.
Politics may also complicate the outlook. The United States, Canada and Mexico are approaching another round of discussions over their trade arrangements, with negotiations expected to intensify in the coming months. While few expect a complete breakdown in relations, investors remain sensitive to any signs of renewed trade friction.
The Canadian economy is deeply integrated with that of its southern neighbour. Even modest uncertainty around market access, tariffs or supply chains can influence investment decisions and currency valuations.
Markets therefore face an unusual combination of forces. On one side sits a currency that appears cheap and an economy showing tentative signs of resilience. On the other are softer commodity prices and lingering geopolitical risks.
While the outlook is improving, it's not yet convincing. That ambiguity is particularly visible in the Pound-to-Canadian-dollar exchange rate.
Despite Scotiabank's constructive medium-term view, Sterling continues to enjoy strong momentum. GBP/CAD has pushed through the important 1.87 level, a barrier that had repeatedly capped advances throughout 2025 and the first half of 2026.
The latest move has been accompanied by supportive momentum indicators. The pair's 21-day moving average continues to rise, while the Relative Strength Index has strengthened without yet reaching levels typically associated with overbought conditions.
Together, these signals suggest that buyers are in control. The next significant target lies around the 1.8815 to 1.8820 region, corresponding to highs recorded during previous rallies. A move towards those levels would place sterling at some of its strongest levels against the Canadian dollar in more than a year.
Even so, the advance has been rapid and the exchange rate is approaching the upper boundary of a broader multi-month range. Momentum remains favourable, but markets rarely move in straight lines. Periods of consolidation often emerge after strong rallies as traders reassess valuations and lock in profits.
Any pullback towards the 1.87 area may therefore attract renewed interest from buyers rather than signalling a broader reversal.
Sterling faces its own political uncertainties. Investors are increasingly paying attention to the Makerfield by-election, where Andy Burnham is widely expected to secure victory and return to Westminster. The outcome itself is unlikely to surprise markets. Polling and prediction markets have pointed towards such a result for some time.
What matters more is what follows. Currency markets generally care less about election results than about the policies those results may enable. A successful return to Parliament would inevitably trigger renewed discussion about Labour's future direction and the position of Prime Minister Keir Starmer.
Convera argues that a stronger political profile for Burnham will revive speculation about Labour's leadership and create additional uncertainty around the government's medium-term agenda. Such concerns remain secondary to broader economic forces, but they are unlikely to be ignored by investors already assessing Britain's fiscal outlook.
For now, Sterling retains the technical upper hand over the Canadian dollar. Yet beneath the surface, the foundations of the trade may be becoming less straightforward. If Scotiabank is correct and the loonie is indeed undervalued, recent weakness may ultimately prove less a sign of structural decline than an example of markets taking a pessimistic story slightly too far.
