The Canadian economy remains resilient. Therefore, economists at the National Bank of Canada expect the loonie to strengthen.

A red hot economy

“After a 15.7% surge in Q1 2022, Canada leads the G7 when it comes to growth in nominal GDP. With the economy firing on all cylinders, the Bank of Canada unsurprisingly opted to raise its overnight rate target 50 basis points on June 1. The odds of a 75-bp move in July are no longer trivial.”

“With the Canadian economy showing stronger momentum than the US economy, short-term interest spreads moved significantly in Canada's favour for the first time in six months. This should favour a further appreciation of the CAD against the greenback.”

“Aside from economic fundamentals, there are also technical elements that could favour CAD appreciation in the coming weeks as Canada’s bond market will be handing out more than $13 billion in coupon payments and redemption proceed.”