The Canadian dollar (CAD), commonly referred to as the "loonie," has recently shown signs of resilience following a rebound in domestic retail sales, which boosted investor confidence. On September 8, 2025, the CAD recorded an uptick as the market reacted positively to stronger-than-expected retail data. Analysts are now speculating that an acceleration in Canadian producer price inflation could further support the loonie early this week.
However, underlying bearish sentiment against the CAD has reached a five-month high, with non-commercial net short positions climbing to nearly 109,000 contracts. This sentiment is fueled by disappointing employment figures, as Canada reported a loss of 65,500 jobs in August, causing the unemployment rate to rise to 7.1%. Consequently, expectations for potential interest rate cuts by the Bank of Canada (BoC) have increased ahead of their policy meeting on September 17.
Despite these concerns, a recent Reuters poll indicates a more optimistic outlook for the loonie, with forecasts suggesting it could rise 1.4% to 1.36 per U.S. dollar over the next three months and attain 2.8% gain toward 1.3415 within a year. Analysts attribute this anticipated strengthening to expectations that the BoC's easing cycle is nearing an end.
Oil prices, which significantly impact the CAD given Canada's status as a major oil exporter, experienced a modest rise to $62.29 per barrel following an OPEC+ decision to increase production. Nevertheless, declining Canadian 10-year bond yields may exert downward pressure on the CAD, complicating the currency's outlook.
Currently, the CAD to USD exchange rate stands at 0.7255, just below its three-month average, operating within a stable 2.4% range. The CAD has also reached 14-day highs against the Euro, GBP, and JPY, indicating some short-term strength, although trading remains largely stable against these currencies.
The value of the CAD will continue to be influenced by OIL to USD, currently at $66.82, which is about 2.0% below its three-month average. As it has shown considerable volatility in recent weeks, ranging from $65.50 to $77.01, further fluctuations in oil prices could lead to additional impacts on the CAD.
In summary, while recent retail sales data lends some support to the Canadian dollar, the weight of bearish positioning, labor market weaknesses, and oil price dynamics could add complexity to its forecast in the near future.
