Rabobank analysts Molly Schwartz and Christian Lawrence argue that heightened geopolitical risk from the war in Iran has reinforced safe-haven demand for the Dollar, keeping USD/CAD supported even as the US–Canada rate differential is projected to narrow to 75bp by end-2026. They expect USD/CAD to trade largely sideways through 2026, with risks skewed toward a test of 1.40.
Safe-haven Dollar caps Canadian Dollar gains
“In light of the financial risks posed by the war in Iran, investors have sharply shifted to “risk off” mode, driving the return of the safe-haven fundamentals in the USD.”
“But we should be clear, USD is still king in trying times like this.”
“Therefore, our forecast for the US-CA rate differential through to 2026 year end remains unchanged, narrowing to 75bp, driving some USD weakness against CAD.”
“Therefore, we still see USD/CAD trading mostly sideways throughout 2026, however, the risk to this view is that we see a move towards the top of the recent band to 1.40, sooner than is suggested by our current projections.”
“We still see USD outperforming CAD on back of demand for USD as a safe haven, but we see CAD outperforming almost everything else.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/usd-cad-sideways-bias-with-safe-haven-support-rabobank-202603090743
