Canadian Dollar Outlook Brightens on Early Signs of Cyclical Upswing

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Canada's dollar outlook is brightening as business confidence surges, but trade shadows linger short-term.

The Canadian dollar remains subdued across the G10 FX complex, but early signs of a cyclical rebound in domestic sentiment are improving its medium-term outlook.

Fresh survey data show Canadian small business confidence rebounded sharply at the start of February, breaking from the downbeat tone that characterised much of 2025.

CFIB's long-term optimism gauge climbed to 64.8 while short-term optimism jumped to 61.2, both now sitting comfortably above long term trend. Staffing intentions improved, with hiring plans continuing to outpace layoff expectations for a second consecutive month.

If sustained, that improvement could eventually feed into official labour market and activity data, potentially influencing the policy outlook at the Bank of Canada.

Stronger employment momentum would reduce the probability of further rate cuts, a shift that would ordinarily lend support to the Canadian dollar.

However, currency markets remain cautious and trade policy remains the dominant overhang.

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

The joint review of the United States-Mexico-Canada Agreement is scheduled to begin around July 1, and recent reports suggest former President Donald Trump has privately considered withdrawing from the agreement he signed during his first term.

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

HSBC warns that the uncertainty could weigh on the currency.

"Trade uncertainty around a possible review of USMCA after July 2026 could prompt some selling pressure on CAD," the bank says.