Canadian 5 Bank Forecast, April 2025

After being maligned for the first three months by Trump’s tariff tantrums, Canada—alongside Mexico as a USMCA partner—was largely spared from the latest round of US tariffs. This exemption provided some relief and helped fuel a quiet yet impressive rally in the Canadian dollar, which surged nearly five cents to trade below 1.39. However, while the loonie has gained ground in recent days, its longer-term outlook remains uncertain. President Trump’s escalating trade wars threaten to disrupt not only Canada’s economy but also other major economies. Slowing US growth, stubborn inflation, and increasingly cautious investor sentiment have weighed on the greenback, offering support to the loonie. However, analysts remain split. Optimists highlight improving sentiment, solid economic data, and the potential for a more dovish Federal Reserve as tailwinds for further CAD appreciation. Others caution that the Canadian dollar's rally could prove short-lived if the US downturn deepens or if global trade tensions escalate—particularly with Trump’s return to the spotlight and renewed protectionist rhetoric. For now, the loonie trades in a fragile balance, sensitive to both domestic resilience and the uncertain trajectory of the broader North American economy.

The euro has remained relatively strong against the Canadian dollar in recent weeks, supported by improved sentiment in the eurozone and contrasting economic momentum in Canada. While the European Central Bank continues to gradually ease policy in response to subdued inflation and sluggish growth, the euro has benefited from its relative stability and safe-haven status. In contrast, Canada faces growing economic headwinds, including the impact of renewed US tariffs on key exports, weakening business confidence, and rising concerns about a potential recession. Although the Bank of Canada is expected to hold rates steady for now, softer domestic data and uncertainty around trade policy have put pressure on the loonie. As a result, the EUR/CAD pair is expected to stay within a relatively stable range through April and into May, though volatility may increase as markets react to shifting global conditions and diverging central bank paths.

The British pound has experienced volatility against the Canadian dollar in recent weeks, currently trading around 1.81 CAD per GBP. This fluctuation reflects a combination of domestic economic challenges in the UK and broader global uncertainties. The UK economy is grappling with the ramifications of recent US tariffs, which have disrupted trade and heightened inflationary pressures. These developments have prompted the Bank of England to consider monetary policy adjustments to mitigate potential economic slowdowns. Concurrently, the Canadian dollar has shown relative stability, supported by steady commodity demand and a cautious stance from the Bank of Canada. These factors suggest that the GBP/CAD exchange rate could remain volatile in the near term, driven by changing economic policies and global trade developments.