⦿ Executive Snapshot

• What: Soft Canadian inflation and weak employment data are expected to keep the USD/CAD exchange rate supported near 1.37 in Q2 2026.
• Who: TD Securities FX strategists Howard Du and Linda Cheng.
• Why it matters: The current economic indicators suggest that a downtrend for USD/CAD may only materialize in H2 2026 as Canadian economic data improves and USMCA risks diminish.

⦿ Key Developments

• April CPI in Canada came in at 2.8% year-over-year, missing expectations of 3.1%.
• The Bank of Canada is likely to overlook higher energy prices at the June meeting due to a broad thaw in core inflation measures.
• USD/CAD is forecasted to remain around 1.37 for Q2 2026, with more sustained downtrend expected only in the latter half of the year.

⦿ Strategic Context

• The Canadian economic landscape has been impacted by soft inflation and employment data, which typically influences central bank decisions on interest rates.
• The ongoing uncertainties surrounding the USMCA trade agreement add complexity to the exchange rate outlook for USD/CAD.

⦿ Strategic Implications

• Immediate market implications suggest that the USD/CAD pair will remain supported in the short term, limiting bearish sentiment.
• Long-term implications indicate that as Canadian economic indicators improve, a more decisive downtrend for USD/CAD may develop.

⦿ Risks & Constraints

• Potential risks include further deterioration in Canadian economic data or unexpected shifts in USMCA negotiations, which could impact exchange rate forecasts.
• Regulatory or external economic factors could also pose execution roadblocks for the anticipated downtrend in USD/CAD.

⦿ Watchlist / Forward Signals

• Upcoming Canadian economic reports, particularly inflation and employment figures, will be critical in shaping the USD/CAD outlook.
• Monitoring the progress of USMCA negotiations will provide insights into potential shifts in USD/CAD dynamics.