Key Moments
- ING notes the Canadian Dollar has been the top-performing G10 currency since the conflict began, aided by resilient equity markets and Canada’s energy-exporter profile.
- Markets are currently pricing in a Bank of Canada rate hike by year-end, while ING sees further policy easing as unlikely but remains cautious on Canada’s economic outlook.
- ING expects USD/CAD could come under pressure and potentially fall below 1.35 if the oil rally unwinds gradually and risk sentiment improves.
CAD Outperforms on Equities and Energy Dynamics
ING strategist Francesco Pesole highlights that the Canadian Dollar has outpaced all other G10 currencies since the onset of the conflict. He links this performance to the combination of steady equity markets and the currency’s leverage to Canada’s position as a net energy exporter.
According to Pesole, “The Canadian dollar has been the best-performing G10 currency since the start of the conflict.
…the equity market holding up relatively well remains very crucial as it allows the loonie (like AUD) to fully benefit from its energy net-exporter status without suffering from major risk sentiment fallout.”
Bank of Canada Expectations and Domestic Risks
On the policy front, ING notes that interest rate markets have moved to discount a Bank of Canada hike by year-end. At the same time, the firm maintains a cautious stance on the Canadian macro backdrop.
Pesole writes: “Domestically, markets have also priced in a rate hike by the Bank of Canada by year-end. We aren’t convinced just yet and remain cautious about Canada’s economic outlook due to upcoming USMCA renegotiations. However, further easing now seems off the table.”
USD/CAD Outlook Around the 1.35 Level
ING sees scope for additional Canadian Dollar strength against the U.S. Dollar if current market dynamics evolve in a particular way. The house view ties the next move in USD/CAD to developments in oil prices and broader risk sentiment.
Pesole notes: “Should we see a somewhat gradual unwinding of the oil rally with risk sentiment recovering further, USD/CAD may stay under some pressure and break below the 1.35, late-January lows.”
Key Market Drivers at a Glance
| Factor | Current Assessment by ING |
|---|---|
| G10 FX performance | Canadian Dollar identified as best performer since conflict started |
| Equity market backdrop | Described as holding up relatively well, supporting CAD |
| Energy exposure | Canada’s net energy-exporter status viewed as a key tailwind |
| Bank of Canada expectations | Markets price a rate hike by year-end; ING sees further easing as unlikely |
| USD/CAD technical focus | Potential move below 1.35 and late-January lows if oil rally unwinds gradually and risk improves |
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