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Or sign-in if you have an account.The Canadian loonie on March 5, 2025. Photo by Peter J. Thompson/National PostDeutsche Bank and JPMorgan are piling up on wagers that the Canadian dollar will continue to fall in 2026 as the country’s tame inflation readings fuel a rethink of the Bank of Canada’s interest-rate hike outlook.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorBoth banks are recommending trades on a weaker loonie against the U.S. dollar. They’re also recommending selling the Canadian dollar against the Australian and Mexican currencies.“The Canadian dollar looks too strong versus the greenback relative to rate spreads,” Tim Baker, head of foreign-exchange research Americas at Deutsche Bank, said in an interview. The Canadian economy has been losing jobs and the increasing divergence with U.S. data showing higher inflation and stronger job growth also point to a weaker loonie, he added.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againBaker expects the Canadian dollar to slide toward 1.41 over the next four months, a level last seen in November. The currency was trading at around 1.38 on Friday and ranked among the biggest Group of 10 losers this month, only faring better than the yen.Toronto-Dominion Bank recommends protections against a much higher dollar-loonie pair over the next three months, while Standard Chartered expects the Canadian currency to slide further before year-end, reaching a new 2026 low.The bearish outlook is underpinned by an increasingly strong belief that a weak outlook makes it hard for policymakers to justify rate hikes. Canada released April inflation data on Tuesday, which rose less than forecast as core measures climbed at the slowest pace since 2021.“We don’t see the BOC raising rates until 2027,” said Howard Du, a currency strategist at TD. “Market pricing for 2026 has more room to fall and should weigh on the Canadian dollar in the near-term.”Options traders also see further depreciation ahead. The premium of calls betting on dollar-loonie to rise over puts looking for the pair to fall has kept widening over the past few days. One-month dollar-loonie risk reversals traded at 0.09 per cent in favour of calls on Friday, the most bearish level since April 7, when U.S. President Donald Trump announced a ceasefire with Iran.On Friday, OIS markets are pricing nearly 40 basis points of Canadian hikes before year-end, compared with approximately 50 basis points a week ago. Expectations had held steady over the past two months for two quarter-point hikes in 2026.“Canada has seen less of an inflation impulse in recent months compared to G-10 peers, and this week’s data further reinforces that divergence and our strategic bearish bias on the Canadian dollar,” said Kunj Padh, an FX strategist at JPMorgan.The market and the Bank of Canada are under-estimating the risks to their outlooks, said Steve Englander, global head of G-10 FX research at Standard Chartered.“Despite BOC’s focus on inflation, economic and financial risks are predominantly to the downside,” he noted, forecasting that loonie will slide to 1.40 by year-end, a more than 1.4 per cent decline from Friday’s level and weaker than year-to-date low at 1.3967. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.