A clearer end to Fed hikes should begin to unwind US Dollar strength against overseas majors, helping push USD/CAD to 1.32 by the end of Q3, with more firming for the Loonie in store for 2024. 

The USD still looks unsustainably strong against other major currencies, and higher inflation in Europe will keep the threat of additional monetary tightening alive a bit longer overseas, taking some of the shine off of the greenback. We don’t see that taking USD/CAD below 1.28 next year, a bit less of a Loonie appreciation than expected for some other majors that have more room to run. 

Oil prices could firm up later in 2024 as markets eye a global economic rebound, but these days it takes a much larger move for that to meaningfully lift the loonie relative to other majors, given the reduced response in Canadian oil and gas capital spending in a tighter regulatory climate.