The Canadian dollar is expected to weaken in the near term but could resume its uptrend if Middle East and tariff uncertainties ease, a Reuters poll shows. The next Bank of Canada decision and oil price moves will test that view.
The Canadian dollar is set to hand back a portion of its recent advance against the US dollar over the coming months, but the longer-term path points higher if the twin uncertainties of Middle East conflict and US trade tariffs begin to clear. That is the central takeaway from a Reuters poll of currency strategists, and it frames a USD/CAD pair that is likely to trade in two distinct chapters.
The simple read is that the loonie has run too far, too fast, and a near-term correction is overdue. The better market read is that the currency is caught between two opposing forces: a commodity tailwind that strengthens whenever geopolitical risk flares, and a trade-policy headwind that weakens it whenever protectionist rhetoric escalates. The poll’s conditional optimism is really a bet on which of those forces fades first.
The Reuters survey points to a near-term pullback in the Canadian dollar, implying a higher USD/CAD rate in the next one to three months. That expectation likely reflects stretched long-CAD positioning after a rally that was fuelled by a hawkish Bank of Canada and a surge in crude oil prices. When a currency becomes a crowded trade, even a small shift in narrative can trigger a sharp reversal.
Yet the same poll sees the loonie resuming its uptrend later in the forecast horizon, conditional on an easing of the geopolitical and tariff risks that have dominated macro headlines. This is not a call for CAD strength in isolation; it is a call for a lower risk premium on the global growth outlook, which would lift commodity currencies broadly. For the Canadian dollar, the transmission runs through three channels: oil, trade flows, and interest-rate differentials.
Canada is a petrocurrency. When Brent and WTI crude spike on fears of supply disruption in the Middle East, the Canadian dollar typically follows. The logic is straightforward: higher oil prices improve Canada’s terms of trade, boost export revenues, and support the domestic economy. But that same geopolitical shock also triggers a flight to the US dollar as the world’s reserve currency, creating a tug-of-war in USD/CAD.
If the Middle East conflict de-escalates, oil prices would likely retreat from their risk premium, removing a direct prop for the loonie. However, the broader risk-off bid for the greenback would also unwind, and that second effect often dominates for a currency like CAD that is sensitive to global risk appetite. The poll’s bullish medium-term view implicitly assumes that the net effect of de-escalation is positive for CAD because it lowers the safe-haven bid for the dollar more than it hurts oil-linked inflows.
US tariffs add a separate layer. Threats of new levies on Canadian exports, or a renegotiation of existing trade arrangements, inject uncertainty into the outlook for cross-border commerce. That uncertainty weighs on business investment and can lead to a weaker Canadian dollar as markets price in a potential hit to GDP. An easing of tariff tensions would remove that drag, allowing the currency to reflect more favourable fundamentals.
Beyond commodities and trade, the interest-rate channel is the third transmission belt. The Bank of Canada has been one of the more hawkish major central banks, but markets are now pricing in a rate cut within the next few meetings as inflation cools and growth slows. If the BoC cuts while the Federal Reserve remains on hold, the interest-rate differential narrows, reducing the carry advantage that has supported CAD.
The poll’s near-term caution may partly reflect this convergence risk. A dovish BoC pivot would take the top off Canadian yields just as US yields remain elevated, making USD/CAD a buy on dips for tactical traders. The medium-term bullishness, however, suggests that strategists see any BoC easing as a response to a domestic slowdown that would be offset by a broader global recovery if geopolitical and tariff clouds lift.
The next concrete marker is the Bank of Canada’s upcoming policy decision. If the central bank signals that it is in no rush to cut rates while acknowledging that inflation is under control, the loonie could hold its ground and set up the poll’s expected second-half recovery. Conversely, a surprise dovish tilt would accelerate the near-term pullback and push the bullish scenario further into the future.
Canadian inflation data and monthly GDP figures will also shape the path. A string of soft prints would give the BoC cover to ease, while resilient data would keep the rate advantage intact. For USD/CAD traders, the pair’s direction hinges less on any single data point and more on the sequencing of risk events: first, whether the Middle East conflict escalates or subsides; second, whether US tariff rhetoric turns into action; and third, how the BoC reads the domestic data flow.
The Reuters poll provides a useful framework, not a precise map. It tells you that the smart money sees near-term turbulence but a cleaner trend once the macro fog lifts. The tradeable insight is to watch for a dip in CAD that coincides with a peak in geopolitical fear, because that is where the longer-term bullish consensus would start to get deployed.
AI-drafted from named sources and checked against AlphaScala publishing rules before release. Direct quotes must match source text, low-information tables are removed, and thinner or higher-risk stories can be held for manual review.