After weakness was displayed during the 1st half of this year, analysts say that the outlook for the longer term has improved.
Early this summer, the Canadian dollar was weighed down by uncertainty over Canada’s economic outlook. This occurred while there was bullish sentiment toward the U.S. dollar. However, since July ’26, the balance has shifted in the loonie’s favour.
On the Canadian side, strong jobs data, besides improved readings on the broader economy from the government’s gross domestic product (GDP) report, provided a stronger base for the Canadian dollar. Meantime, south of the border, expectations for multiple interest-rate increases by the Federal Reserve, which had previously lifted the U.S. dollar, have cooled.
As the Canadian economic data improved, the Canadian dollar increased 1.43% against the U.S. dollar in July. It closed the month at CAD 1.40 after trading at CAD 1.42 on 30 June 2026.
Vice president of options dealing & structured products at Monex Canada, Steve Kulchyk, said that July was a strong rebound month for the Canadian dollar. This rebound was particularly so after the weakness witnessed in June. Kulchyk added that the largest driver was the shift in relative monetary policy expectations.
Loonie Gains as Fed Policy Shift Weighs on the Greenback
In exchange rates, money often flows to the currency with higher presents besides expected interest rates. As expectations for interest rates change, that may drive a currency’s relative value up or down. Moving into summer, the U.S. dollar was on the increase after broad-based declines during ’25. A critical factor in its rally against the Canadian dollar & other currencies was a growing expectation that the Fed may be increasing interest rates at least once, if not twice, during ’26. Meantime, Canadian markets were priced for a single interest rate increase from the Bank of Canada (BoC). However, many economists weren’t convinced that such a hike was due.
