We’ve compounded our forecast for Loonie weakness given the divergence in economic activity that the Canadian economy has seen versus US resilience, and we now see USD/CAD peaking at 1.42 in early 2024. 

Canada’s heightened interest rate sensitivity and the deterioration in domestic demand will result in the BoC trimming interest rates a quarter ahead of the Fed, likely starting in Q2 2024. And a shallower path for USD depreciation next year on extended economic resilience leaves less room for loonie appreciation in H2 2024. As a result, we now see USD/CAD ending next year at 1.35, higher than our previous target.