RBC Says CAD Has Room to Strengthen as Q3 GDP in Focus and USD/CAD Shows Downside Risk

04:04 PM EST, 11/21/2025 (MT Newswires) -- The Canadian dollar may face upward pressure in the near term as positioning and technical signals point to downside risk for USD/CAD ahead of next week's domestic growth data, according to RBC Capital Markets' latest CAD Weekly Soundbites.

RBC said attention now turns to Canada's third-quarter GDP report due Nov. 28, which it expects to show a "low, but positive" annualized gain of 0.5%, consistent with the Bank of Canada's October projections. Stronger activity indicators late in the quarter present some upside risk to the print, the bank said. With potential growth estimated in the 0%-1% range, the result would be "more middling than weak."

The bank expects the GDP profile to improve over the coming quarters, gradually reducing the modest slack in the Canadian economy. SEPH payrolls, due Thursday, will be watched for any deterioration following October's drop in unemployment and acceleration in wage growth.

On the FX front, RBC said USD/CAD's recent push higher has put the focus on resistance near 1.4151-1.4181, but noted that the market has rebuilt net-long USD/CAD positions to levels last seen earlier in November, when the rally stalled near the same area. That positioning, combined with technical factors, now suggests "asymmetric downside risk" for USD/CAD from current spot levels around 1.41, implying potential for CAD strength if the pair moves lower.

RBC said the cost to be short USD/CAD using one-month forwards is roughly 15 basis points, below the 30-35bp range of one-month historical volatility, and highlighted the potential for a move of up to 140bp if the pair were to trade toward the lower bound of its ascending channel near 1.3904.

In rates, RBC said the Bank of Canada's conditional pause has been reinforced by firmer labor data, stable activity readings and a consensus CPI report. While small upside risks to Q3 GDP may solidify the pause, discrepancies between monthly and quarterly releases create some uncertainty. The bank warned that if inflation remains above 2% alongside stronger growth, rate hikes could return as early as late 2026.

Government of Canada bonds have continued to lag U.S. Treasuries, widening the CA/US 10-year spread by about 10 basis points over the past two weeks to roughly -86bp, RBC added.

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