Canadian Dollar to Be Dragged Down by USD


Image © Adobe Images


With more USD weakness expected, the CAD looks poised to fall further.

The Canadian Dollar looks set to be dragged lower by the decline in the U.S. Dollar.

Losses for CAD and USD at the start of a new week confirm a correlation seen through much of 2025 is still in place between the two North American currencies: the 'sell America' theme has caught the CAD in its net.

The two North American currencies are trending lower as investors see a shift away from American exceptionalism, driven by policy uncertainty, tariffs and burgeoning debt.

With tariff fears receding, it is the ballooning U.S. debt pile that has captured the market's attention as the Republican Party pushes through a multi-year spending bill through Congress, and Moody's downgrades its credit rating on U.S. debt.

The developments weakened the U.S. Dollar, as well as the Canadian Dollar, which lost value against its global peers in response.

In fact, a look at the CAD/GBP exchange rate, with the Dollar index alongside, confirms a correlation that suggests further CAD weakness is to be expected if the USD falls further.



"Despite a somewhat brighter US outlook, we still expect the Dollar to weaken," says a note from Goldman Sachs.

"We see another 5% move lower in the USD in H2," says Mark McCormick, Head of FX and EM Strategy at Canada's TD Bank.

The Canadian economy is closely aligned and integrated with the U.S. economy, meaning any slowdown in the U.S. will weigh on Canada.

Although the worst of the tariff phase has passed, economists agree that the impact of higher import prices will be felt in the coming weeks and months.

"While we have modestly lowered our tariff rate assumptions with a commensurate decline in recession risks, they are still settling in a much more protectionist area than our assumptions from a few months ago," says Goldman Sachs.

In addition, Canada's unemployment rate is far higher than that of the U.S., and inflation is more subdued, meaning the Bank of Canada has more leeway to cut interest rates in response to a slowdown.

This idiosyncratic weakness, combined with a USD proxy status, bodes for further CAD weakness.


Horizon Currency Ltd
Albany House
40 Shute End
Wokingham
RG40 1BJ Companies House Registration: 11242368

Horizon Currency's payment and foreign currency exchange services are provided by:

Global Currency Exchange Network Ltd T/A GC Partners. Global Currency Exchange Network Ltd is authorised by the FCA under the Payment Services Regulations, 2017 (FRN: 504346). Registered as a Money Services Business, regulated by HM Revenue & Customs ("HMRC") under the Money Laundering Regulations 2017. (Registration number is 12137189). Registered in England and Wales. Company number 04675786. Registered Office 3rd Floor 100 New Bond Street, London, England, W1S 1SP.

Payment Services are provided by Equals Connect Limited, registered in England and Wales (registered no. 07131446). Registered Office: Vintners’ Place, 68 Upper Thames St, London, EC4V 3BJ. Equals Connect Limited are authorised by the Financial Conduct Authority to provide payment services (FRN: 671508).