Published: Thursday, January 8, 2026 · 7:00 PM | Updated: Thursday, January 8, 2026 · 7:00 PM
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🗝️ Key Points
- Investing.com — The Canadian dollar may have exited 2025 with a renewed sense of stability, but Bank of America Securities warns that the currency’s rapid ascent may have.
- In a new analysis, Howard Du, CFA at BofA, suggests that after a tumultuous year defined by trade anxiety and shifting labor dynamics, the USD/CAD pair has reached a point of.
- The "persistently positive economic data surprise" out of Canada has finally acted as a catalyst to "crack" short CAD speculative positioning, Du noted.
Investing.com — The Canadian dollar may have exited 2025 with a renewed sense of stability, but Bank of America Securities warns that the currency’s rapid ascent may have run its course for the immediate future. In a new analysis, Howard Du, CFA at BofA, suggests that after a tumultuous year defined by trade anxiety and shifting labor dynamics, the USD/CAD pair has reached a point of equilibrium.
The “persistently positive economic data surprise” out of Canada has finally acted as a catalyst to “crack” short CAD speculative positioning, Du noted. This reversal follows a third consecutive month of resilient labor data, which effectively dismantled the bearish narrative that had pushed the loonie to a November low of 1.41.
According to BofA’s valuation models, the Canadian dollar is no longer considered “cheap.” The pair’s rapid descent to 1.36 in December represents a return to what the bank defines as fair value.
While the market has pivoted toward optimism, BofA remains skeptical of the more aggressive hawkish bets now appearing in the rates market. “We believe the rates market is premature to price-in a full Bank of Canada (BoC) rate hike for 2026,” Du wrote. “Inflation upside risk is elusive in Canada.”
BofA’s analysis suggests the recent growth spurts are not a sign of an “overheating” economy. Instead, the data indicates Canada is simply on track to close its negative output gap, a process that absorbs excess supply without necessarily triggering the inflationary pressures required for further rate hikes.
Looking into the coming year, Bank of America maintains a “neutral” stance for the near term, forecasting that USD/CAD will hover around 1.38 through the first half of 2026.
The bank’s analysis highlights two conflicting forces:
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Downside Pressure: A broad-based sell-off of the U.S. dollar could continue to drag the pair lower.
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Upside Resistance: As the market gradually “prices out” the expectation of a BoC rate hike, the Canadian dollar is expected to lose some of its recent luster.
BofA views the trajectory of the loonie in 2026 as “backloaded.” The bank anticipates a second wave of appreciation for the Canadian dollar, sending USD/CAD back toward 1.36, only after the USMCA renegotiation process reaches its culmination.
Until that trade uncertainty is cleared from the horizon, Du and his team expect the pair to remain range-bound, resisting further significant gains despite the strong economic finish to 2025.
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