Honestly, if you’ve been watching the loonie lately, you know it’s been a bit of a rollercoaster. Everyone loves to speculate. Will it tank? Will it soar? Usually, the answer is somewhere in the messy middle, and that is exactly where we find ourselves with the canadian dollar forecast 2025.
Early last year, the vibes were pretty grim. Analysts were tossing around "nightmare scenarios" where the CAD would drop into the 60-cent range against the US greenback. But here we are in mid-January 2026, looking back at a year that defied most of those doom-and-gloom predictions.
The loonie didn't just survive 2025; it put up a fight.
Why the Loonie Surprised the Skeptics
Most people assume the Canadian dollar just follows oil prices like a lost puppy. While crude matters, the real story of 2025 was the "interest rate dance" between the Bank of Canada (BoC) and the US Federal Reserve.
Think of it like a game of chicken.
The Bank of Canada, led by Tiff Macklem, finally hit the brakes on rate cuts in late 2025. They held steady at 2.25% in December, signaling to the world that the era of "emergency easing" was over. Meanwhile, south of the border, the Fed was still trimming. By the time 2025 wrapped up, the Fed had brought their rate down to a range of 3.5% to 3.75%.
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The Narrowing Gap
Why does this matter for your wallet? Basically, when the gap between Canadian and US interest rates shrinks, the loonie gets a boost. Investors start thinking, "Hey, maybe Canada isn't a bad place to park some cash after all."
- Bank of Canada Rate: Held at 2.25% through the end of 2025.
- US Federal Reserve Rate: Slipped to 3.5%-3.75%.
- The Result: A narrowing yield spread that prevented the CAD from falling off a cliff.
We saw the USD/CAD pair spend a lot of time grinding between 1.35 and 1.38. It wasn't exactly a victory lap for Canada, but compared to the 1.44 levels we saw in early 2025, it was a massive relief.
The Tariff Ghost in the Machine
You can't talk about the canadian dollar forecast 2025 without mentioning the "T-word." Tariffs.
Trade uncertainty was the single biggest weight on the currency all year. Every time a new headline about North American trade barriers popped up, the loonie flinched. The Bank of Canada’s October 2025 Monetary Policy Report was basically one big sigh of exhaustion regarding trade volatility.
But here’s the kicker: the actual impact wasn't as catastrophic as the headlines suggested.
Canadian exporters proved surprisingly scrappy. While some sectors felt the pinch, the overall economy managed to grow by about 1.2% in 2025. Not a boom, but not a funeral either. This resilience is a huge reason why the CAD/USD exchange rate managed to claw back toward 0.72 or 0.73 by the end of the year.
Oil, Growth, and the "Range-Bound" Reality
Is the loonie still a "petro-currency"? Sorta.
But the relationship is getting complicated. Brent crude averaged around $74 a barrel in 2025, which provided a decent floor but didn't trigger any wild rallies. What really drove the bus was domestic productivity—or the lack thereof.
OECD reports and bank analysts like Shaun Osborne at Scotiabank have been banging the drum on Canada's productivity problem for a while now. We’re great at growing our population, but we’re not as great at growing our output per person. This "productivity gap" is why you likely won't see the loonie return to par (1:1) with the US dollar anytime soon.
"The loonie is modestly undervalued but not positioned for a sharp rally," noted one foreign exchange specialist at MTFX late last year.
That pretty much sums it up. We’re in a "grind lower" or "range-bound" environment where the currency isn't dying, but it isn't exactly thriving either.
Breaking Down the 2025 Performance
If you look at the monthly snapshots from 2025, the volatility was wild. In February, we hit a low of nearly 1.46 (USD/CAD). By June, it had recovered to the 1.36 range. Why the swing? It was a mix of US inflation cooling faster than expected and a temporary "trade truce" that gave markets some breathing room.
What This Means for 2026 and Beyond
Now that we’re standing in 2026, the 2025 forecast has become reality.
The "surprise rebound" people talked about in September 2025 actually held. Most major Canadian banks—TD, RBC, BMO—ended the year with forecasts hovering around 1.38 for USD/CAD. They were pretty much on the money.
So, what should you actually do with this info?
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If you’re a business owner importing goods from the US, the "low-1.30s" is your friend. Most experts suggest that any move toward 1.33 or 1.34 is a golden opportunity to hedge your bets and buy some US dollars before the next trade headline hits.
For travelers, don't expect a miracle. The days of a 90-cent loonie feel like a fever dream from a decade ago. We are likely staying in this 70-to-74 cent USD range for the foreseeable future.
Actionable Insights for Your Money
- Watch the Yield Gap: If the Fed signals they are done cutting, expect the CAD to weaken. If they keep cutting while the BoC stays put, the loonie has room to run.
- Hedge on the Dips: If you see USD/CAD drop toward 1.34, that’s historically a good time to secure your foreign currency needs for the year.
- Don't Ignore Energy: Even though the link is weaker, a sudden spike or crash in oil prices still acts as the ultimate "wild card" for the Canadian economy.
- Monitor Trade Reviews: Keep an eye on the USMCA review news. Even though the formal joint review isn't until July 2026, the posturing in the months leading up to it will create plenty of CAD volatility.
The canadian dollar forecast 2025 taught us that the loonie is more durable than people give it credit for. It survived high interest rates, trade threats, and lackluster productivity. It’s not a powerhouse, but it’s definitely not a goner.
Keep your eye on the central bank statements from the BoC and the Fed—those are your true North Stars for where the exchange rate is headed next.
Check your current foreign exchange exposure and consider using layered hedging strategies if you have significant US dollar obligations in the coming months.