Deutsche Bank Says Canadian Dollar's Resilience Faces A Challenge

08:12 AM EDT, 03/17/2026 (MT Newswires) -- The Canadian dollar (CAD or loonie) has performed well in March -- it has kept pace with the US dollar (USD) and outperformed every other G10 currency, said Deutsche Bank.

The most obvious explanation is that Canada's energy leverage has helped, contributing to the market repricing the Bank of Canada quite hawkishly -- only the European Central Bank and Bank of England have repriced more, noted Deutsche Bank.

However, the bank isn't "enthused" and sees risks that the BoC at Wednesday's policy meeting might deflate this story with its language -- universal expectation being no change in policy. As such, Deutsche Bank has a bearish CAD bias.

The CAD move might have just as much to do with positioning as anything else, stated the bank. Gold's underperformance this month in the presence of a large global shock shows better than anything just how much positioning unwinds have driven market moves.

And there just wasn't much CAD interest to unwind -- the CFTC data suggests leveraged funds had substantial shorts, while persistent low volumes meant others hadn't looked much at the currency, added Deutsche Bank. Canada's energy exposure is attractive, but it's less of a unique selling point these days, with the United States and Australia gaining substantial exposure also via the fracking revolution.

Notably, CAD's correlation to oil has actually fallen in the past couple of years, according to the bank.

Meanwhile, the domestic picture is worsening in Canada, highlighted by big releases just in the past two trading days. The employment print was a huge shock -- the size of the fall (84,000), and the miss relative to consensus, were the largest in history outside COVID-19 and the Global Financial Crisis.

Separately, inflation has now trended materially lower for three straight months -- after previous stickiness -- and by a little more than expected. On a six-month annualized basis, core inflation is now sub-2%.

Looking broadly, Canada's position relative to G10 peers is "stark" -- it ranks the lowest on a scorecard covering unemployment, inflation, exports, and growth metrics, claimed Deutsche Bank. It's, in fact, in the bottom three on all measures.

The bank sees grounds for a material dovish repricing relative to peers. Deutsche Bank even sees the risk of a rate cut this year -- notwithstanding the BoC view that the downturn is structural in nature, so not for it to address -- if oil prices were to ease.

Deutsche Bank prefers selling CAD against the Australian dollar (AUD) and USD. And if the Iran war/oil price were to ease, EUR/CAD could quickly "jump."

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