Currencies April 25, 2026 06:29 PM

Goldman Sachs: Energy Shock Keeps Canadian Dollar Firm Despite Soft Domestic Data

Bank expects federal rate pause in April but warns medium-term outlook for CAD is less constructive amid USMCA uncertainty

By Jordan Park
Goldman Sachs: Energy Shock Keeps Canadian Dollar Firm Despite Soft Domestic Data

Goldman Sachs says the Canadian dollar has held up among G10 currencies in recent weeks even as domestic indicators have softened. March inflation undershot expectations despite an energy shock, and employment has stabilised with only modest improvement versus a year earlier. The firm anticipates the Bank of Canada will stay on hold at its April meeting, while medium-term prospects for the currency are clouded by trade uncertainty ahead of the USMCA deadline.

Key Points

  • CAD has been resilient among G10 currencies despite softer Canadian economic data - impacts FX and financial markets
  • March inflation undershot expectations even with the energy shock, and employment stabilised with modest year-on-year improvement - impacts monetary policy expectations and domestic financial sectors
  • Goldman Sachs expects the Bank of Canada to remain on hold at its April meeting, while medium-term currency prospects are weighed by USMCA uncertainty - impacts trade-exposed industries and cross-border capital flows

Goldman Sachs notes that the Canadian dollar has been relatively resilient against other G10 currencies in recent weeks, even though key domestic data have shown weakness.

The bank highlighted that March inflation came in below expectations despite an ongoing energy shock, and that the most recent employment report showed that the labour market has stabilised but delivered only marginal gains compared with the same period a year earlier. Against that backdrop, Goldman Sachs economists expect the Bank of Canada to hold policy steady at its April meeting.

Despite the near-term firmness, the firm said it is less constructive on the Canadian dollar over the medium term. One specific headwind flagged is the uncertainty surrounding the United States-Mexico-Canada Agreement - USMCA - which Goldman Sachs says could weigh on the currency as negotiations approach the July 1 deadline.

Goldman Sachs analysts emphasised the dominant role of energy-market developments in shaping the currency's path. "As long as the terms of trade implications of the energy shock remain at the fore, Canada’s idiosyncratic domestic considerations should remain secondary FX drivers," the team said.

In Goldman Sachs’ GSTOT framework, the Canadian dollar displays high sensitivity to oil-price shocks and shows a positive correlation with the broad dollar. That dynamic helps explain why CAD has outperformed in the short run under current market conditions.

The firm also cautioned that the currency’s exposure to the dollar - its so-called dollar beta - introduces two-way risk. Should risk sentiment recover persistently and commodity markets relax, the Canadian dollar could underperform.

In summary, Goldman Sachs sees the near-term trajectory of the Canadian dollar as closely tied to energy-market moves and dollar dynamics, while medium-term prospects reflect caution related to trade uncertainty and the potential for shifts in risk appetite and commodity prices.

Risks

  • USMCA-related uncertainty ahead of the July 1 deadline could exert downward pressure on the Canadian dollar - impacts trade and export-oriented sectors
  • A sustained recovery in risk sentiment and a relaxation in commodity markets would raise the risk of CAD underperformance due to its positive correlation with the broad dollar and sensitivity to oil-price shocks - impacts commodities and FX markets

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