The Canadian Dollar was the fifth best performing major currency against the USD in the first half of 2023. Economists at the National Bank of Canada analyze USD/CAD outlook.

H2 unlikely to be as good as H1

One of the main drivers of CAD appreciation in the first half of the year was the significant tightening of Canada-US interest rate differentials. With inflation trending down faster on this side of the border, it is very unlikely that the BoC will want to outpace the Fed on potential summer hikes. 

After its recent strength, our model suggests that the USD/CAD is now slightly overvalued.

Looking ahead, we expect USD/CAD to return to the upper end of the 1.33-1.38 range in the second half of 2023 as the global economy shows tangible signs of weakness.