Canadian Dollar Labours Under USMCA Headache

President Donald Trump greets Prime Minister of Canada Mark Carney, Tuesday, May 6, 2025, at the West Wing entrance of the White House. Official White House Photo by Daniel Torok.

The Canadian dollar is the second-worst performing currency in the G10 this year, but its fortunes will improve say analysts we follow.

With the New Zealand dollar and Canadian dollar topping the 2026 league table, fellow commodity currency the Canadian dollar really ought to be doing better.

Not only are commodities being supportive, but like the RBA and the RBNZ, there's a strong case to be made for the Bank of Canada having also completed its rate cutting cycle.

The divergent fortunes in the commodity dollar complex point to ongoing CAD-specific negatives that probably won't be resolved for a few months, ensuring the potential for further underperformance.

"The CAD continues to underperform other commodity currencies because of continued geopolitical friction with the US," says a research note from Barclays, released this week.

Last year, we reported that the CAD found itself living in a 'bad neighbourhood' owing to the disruptive global trade policies being pursued by its southern neighbour.

And although it appears U.S. President Donald Trump is rowing back on tariffs, markets appear concerned that Trump is still ready to target his North American neighbours.

"President Trump's ambivalence toward renewal of the USMCA was the latest such incarnation last week," says Barclays. "The CAD remains vulnerable to geopolitical risks."

The USMCA joint review and negotiations are officially scheduled to begin around July 01. Recent news reports suggest Trump is privately weighing exiting the USMCA trade pact he delivered during his first term in office.

An official in U.S. Trade Representative Jamieson Greer's office said that a rubber-stamp of the 2019 terms was not in the national interest and the administration intended to keep Trump’s options open.

"Trade uncertainty around a possible review of USMCA after July 2026 could prompt some selling pressure on CAD," says a new note from HSBC.

"A threat from President Trump to withdraw from the USMCA trade deal poses downside risk for the Canadian dollar," adds an analysis from MUFG Bank Ltd.

For CAD to turn the corner, a more-lasting trade deal with the U.S. is "essential for a sustained, broad-based rebound," says Barclays.

Looking ahead, strategists at HSBC think 2026 will see the CAD start to walk its own path.

"While we still see a weak USD pulling USD-CAD lower in Q126 and bottoming thereafter, we expect Canadian factors to exert more of an influence over 2026," they add.

In the currency's favour are interest rates which may prove supportive for the CAD as recent upside surprises on Canadian activity and labour market indicators persist.