The Canadian dollar (CAD) is the weakest of the G10 currencies, as markets weigh on potential Venezuelan oil supplies and uncertainty over renegotiations of the United States-Mexico-Canada Agreement (USMCA), notes Francisco Pisol, FX analyst at ING.
The Canadian dollar is exposed to USMCA and Bank of Canada risks
“The Canadian dollar is the worst-performing currency in the G10 since the weekend. Markets are clearly weighing the risks of future oversupply of Venezuelan oil, which would hurt Canadian heavy sour crude, which has been trading at a premium during the supply glut in Venezuela. The price of WTI expanded slightly on Monday, underscoring that the commodity market is trading cautiously in these geopolitical events.”
“However, the Canadian dollar is at a more vulnerable point. Our short-term fair value model suggests the pair should trade above 1,380, and we believe markets may still be underestimating the risks of the impact uncertainty over the renegotiation of the United States-Mexico-Canada Agreement (USMCA) will have on the economy and the risks that the Bank of Canada may have to cut again in 2026.”
“We continue to favor other high-beta currencies such as the New Zealand dollar, Swedish krona and Norwegian krone over the Canadian dollar at the moment, and see risks to the 1.390 area in the USD/CAD.”
