TD Sees Gradual CAD Uptrend Through 2026

TD Securities published a multi-year forecast calling for a gradual uptrend in the Canadian dollar against the US dollar through 2026. The call moves the loonie into focus for traders assembling a USD/CAD watchlist, not as a short-term breakout but as a structural drift lasting multiple years. The simple read is that a major bank sees the Canadian dollar strengthening over time. The better market read traces the mechanism: narrowing rate differentials between the Federal Reserve and the Bank of Canada, combined with sustained commodity support from oil and natural gas.

USD/CAD Forecast: Multi-Year Drift Explained

TD Securities expects the interest rate gap between the Fed and the BoC to compress over several years. That compression reduces the carry advantage that has propped up the US dollar since 2022. A narrower differential raises the relative appeal of the Canadian dollar for yield-seeking flows, particularly when volatility stays low enough to support carry trade positioning. The forecast does not rely on a single data print. It depends on a gradual policy convergence that plays out across multiple rate cycles.

Commodity prices form the second leg of the thesis. Canada’s export profile ties the loonie to crude oil and natural gas. If global energy demand holds steady and supply constraints persist, the terms-of-trade channel strengthens the Canadian dollar. The currency also correlates with broader risk appetite, given Canada’s sensitivity to global growth cycles. A gradual uptrend implies that TD expects no sudden shock in either the rate path or commodity markets over the forecast horizon.

Why Gradual: Rate Differential Compression and Oil

The word “gradual” matters for positioning. A gradual uptrend suggests a slow grind lower in USD/CAD (a falling exchange rate in dollar terms), not a breakout rally. That profile fits a scenario where the Fed cuts rates cautiously while the BoC holds or eases at a slower pace. The yield curve normalization process is rarely linear. Interim data spikes in US employment or inflation could temporarily widen the rate gap again, producing pullbacks that test the trend’s durability.

Oil prices act as both a catalyst and a risk. A sustained rally in crude above key thresholds would accelerate the Canadian dollar’s gains. A demand shock or a surge in OPEC+ spare capacity could break the uptrend. TD’s gradual forecast implicitly assumes oil stays in a range that supports Canadian export revenues without triggering a recession-linked demand collapse.