Goldman Sachs has revised down its USD/CAD forecasts as Canadian dollar fundamentals remain constructive. Despite a recent USD rebound driven by risk aversion, Goldman remains optimistic about CAD strength, supported by oil prices, limited BoC cuts, and potential growth resilience.

Key Points:

• New Forecasts:
  USD/CAD is now forecast at 1.35 (3M), 1.34 (6M), and 1.32 (12M)—lowered from previous targets of 1.36, 1.35, and 1.34 respectively.

• CAD Progress and Temporary Setback:
  CAD had made substantial gains until the latest risk-driven USD rally, which Goldman views as a temporary interruption.

• Growth & BoC Policy Outlook:
  Goldman’s economists expect only one more BoC cut this year. Despite dovish inflation rhetoric from Governor Macklem, the underlying inflation picture remains contained, especially when considering alternative metrics like CPIX.

• Policy Lag Still in Play:
  The Bank sees lagged effects of prior tightening still working through the economy, reinforcing a cautious approach.

• Risk vs. Policy Dynamics:
  In the near term, geopolitical risks are outweighing central bank narratives, but CAD remains more insulated than other FX due to its commodity linkage.

• Oil Price Sensitivity:
  CAD has shown strong performance during oil price shocks, with last Friday’s price surge confirming its status as a commodity-sensitive outperformer.

Conclusion:

Goldman Sachs remains constructive on CAD, viewing recent USD/CAD strength as an opportunity to position for further downside. They expect USD/CAD to grind lower over the coming quarters, driven by relatively benign inflation, a conservative BoC easing path, and oil-linked resilience amid geopolitical risks.

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