The Canadian Dollar has exhibited moderate strength, correlating with improved risk sentiment, although its appreciation trails that of other commodity-linked currencies, according to Scotiabank’s Chief FX Strategist Shaun Osborne. CAD gains are supported by narrowing US/Canada interest rate differentials, with 2-year swap spreads reaching a four-month low. However, further spread compression is deemed necessary for substantial CAD appreciation. The current spot rate aligns with Scotiabank’s fair value estimate of 1.4196. The Bank of Canada’s Q1 Business Outlook Survey indicated weakened business confidence and pervasive uncertainty regarding tariffs, impacting hiring and investment decisions. Concurrently, the survey revealed rising input price expectations, marking the first increase in two years. Market expectations increasingly favor monetary easing by the Bank of Canada in the near term. However, policymakers are likely to require greater clarity regarding the economic outlook before implementing any rate cuts. An interest rate adjustment at the upcoming meeting is considered improbable.
