Cautious Outlook for Canadian Dollar: BofA’s Du Sees Strong Support at 1.30 USD/CAD

BofA’s Du: USD/CAD Unlikely to Drop Below 1.30 as Loonie Upside Remains Limited

The Canadian dollar (loonie) may face continued challenges in extending its recent gains, according to Bank of America’s Head of FX Strategy, Howard Du. In a recent market note, Du emphasized that while the loonie has shown strength in recent weeks, there is limited scope for significant upside, and the USD/CAD pair is unlikely to fall below the 1.30 level in the near term.

Du pointed to several factors that could keep the Canadian dollar’s appreciation in check. Among them are concerns about global growth, fluctuations in oil prices, and the Bank of Canada's cautious monetary policy stance. While Canada’s economy has remained relatively resilient, it remains highly sensitive to external demand and commodity price swings, particularly crude oil, which remains a major export.

“Even with some positive domestic data, external headwinds continue to weigh on the loonie’s broader upside potential,” Du stated. “We do not see USD/CAD breaking below 1.30 in the foreseeable future, as global uncertainties persist and oil prices remain volatile.”

Energy prices, which often act as a significant driver for the Canadian dollar, have experienced significant swings amid geopolitical tensions and fluctuating demand forecasts. While recent oil price increases have provided some support to the loonie, any sustained pullback in energy markets could quickly reverse its momentum.

Meanwhile, the Bank of Canada’s cautious approach to further interest rate hikes also adds to the loonie's headwinds. With inflation showing signs of stabilization but economic growth slowing, policymakers may opt for a wait-and-see approach, limiting the yield advantage for the Canadian dollar versus its U.S. counterpart.

In contrast, the U.S. Federal Reserve remains data-dependent but has signaled that it may hold rates higher for longer, providing continued support for the U.S. dollar. This policy divergence between the two central banks reinforces BofA’s view that the USD/CAD pair will likely remain above 1.30.

Market participants are also monitoring broader risk sentiment, as global investors remain cautious amid ongoing trade tensions, political uncertainty, and uneven economic recoveries across regions. In such an environment, safe-haven flows into the U.S. dollar could further cap any loonie strength.

Technical analysts highlight that the 1.30 level in USD/CAD represents a key psychological and technical support zone. Any sustained move below this level would likely require a significant catalyst, such as a sharp rebound in oil prices or a marked shift in monetary policy expectations.

For now, BofA’s cautious stance suggests that the Canadian dollar’s room for further appreciation remains limited, and the USD/CAD pair may continue to trade within its current range in the coming weeks.