Gold prices are soaring, and while that provides a boost to the value of the Canadian dollar, that support is being outweighed by the monetary policy picture, which favours the U.S. greenback, says Desjardins Group.
In a report on Friday, Desjardins said its analysis shows gold is becoming an increasingly important driver for the loonie, as Canada is a major producer and exporter of the precious metal, which has seen prices rise 43% so far this year.
“Given this exposure, it would be reasonable to expect trade and investment flows to become increasingly supportive of the Canadian dollar,” it said.
For now, monetary policy remains a bigger factor for the loonie’s value against the U.S. dollar.
“Gold prices currently explain about 12% of the weekly variance in USD/CAD — far more than oil prices, but a distant runner-up to monetary policy, which explains roughly 25%,” it said. “Put another way, the loonie isn’t ignoring gold prices, but their impact is being offset by interest rate expectations.”
The monetary policy picture currently favours the U.S. dollar, it noted.
“While there are risks on both sides, we believe they are skewed towards the Fed doing a little less and the [Bank of Canada] doing a little more than the market anticipates. This should keep the loonie on the back foot for now,” the report said.
Looking ahead, commodity prices may become a stronger support for the loonie in 2026, the report suggested.
“A more broad-based rise in Canada’s terms of trade, including higher energy prices, may help revive the loonie’s ‘commodity currency’ status,” it said. “That outcome would also depend on whether higher prices and shifts in government policy stimulate domestic production — either through new capital investment or the activation of idle capacity.”