MUFG Sees Canadian Dollar Underperforming as Estimates Energy Price Spike Reversal

10:41 AM EST, 03/03/2026 (MT Newswires) -- In February, the Canadian dollar (CAD or loonie) weakened against the US dollar (USD) in terms of London closing rates from 1.3560 to 1.3637, said MUFG.

The Bank of Canada did not meet in February and, as such, the key policy rate was unchanged at 2.25%, following total easing now of 275bps in the current cycle.

The Canadian dollar weakened in February and CAD performed relatively poorly given the surge in crude oil prices, noted the bank. Australian dollar (AUD) and Norway's krone (NOK) were the best performers, helped by crude oil gains and the rebound in commodity prices.

The Canadian dollar is being held back by the monetary outlook relative to the United States and the continued downside risks to the economic outlook, stated MUFG. The two-year U.S.-Canadian swap rate spread is currently trading at a level more consistent with USD/CAD trading at around the 1.4000 level.

The BoC will likely keep the policy rate on hold this year, although softer inflation in February does offer some flexibility, potentially if growth is weaker than expected, pointed out the bank.

The OIS curve shows just short of 10bps of easing priced for later this year, with the year-over-year consumer price index core trimmed rate dropping more sharply than expected, to 2.4% from 2.7%, added MUFG. CAD performance may also be impacted by uncertainties related to trade with the USMCA deal set for renegotiation with a deadline of July 1. U.S. Trade Representative Jamieson Greer has complained about the difficulty of dealing with

Canada, in contrast to the "quite pragmatic" approach of Mexico.

President Donald Trump has also complained about Canada's bilateral trade deals with other countries, including the ironing out of differences with China.

Given MUFG's initial take on the US-Israel conflict with Iran and the assumption of this lasting weeks rather than months, the bank sees the energy price spike reversing and as such it maintains that CAD will underperform.

USD/CAD is set to drop, but by less than other G10 currencies, according to the bank.

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