ING says Canadian dollar has further to fall on tariff chaos

ING strategists forecast further weakness for the Canadian dollar as escalating US-Canada trade tensions and dovish Bank of Canada repricing weigh on the currency. Following the collapse of trade talks on August 22, the US enacted 50% tariffs on approximately $20 billion of Canadian goods, with 50% duties on autos, parts, and steel scheduled for January 1, 2027. In response, Canada introduced matching $20 billion retaliatory tariffs set to take effect on September 8. Despite the tariff escalation, the Canadian dollar has shown relative resilience, having underperformed G10 peers by only 0.5% after adjusting for broader dollar strength. ING argues that markets are overly complacent by assuming trade disputes will inevitably give way to negotiations. Consequently, cumulative Bank of Canada tightening expectations through April 2027 have dropped from 63 basis points to 44 basis points. In the near term, ING projects USD/CAD to rise toward 1.3920-1.3950, targeting 1.39 by the end of Q3. However, further gains are expected to be capped into year-end at 1.38 as projected Federal Reserve rate cuts weaken the US dollar.