The Canadian Dollar's Rise: Navigating the Road to Parity by 2025

In a world where currency valuations are increasingly shaped by structural shifts rather than cyclical whims, economist David Rosenberg’s latest analysis of the Canadian and U.S. dollars offers a bold thesis: the Canadian dollar (CAD) is poised to outperform its U.S. counterpart (USD) over the next three years, culminating in a potential parity (CAD/USD = 1.00) by 2025. Rosenberg’s blend of macroeconomic fundamentals and technical chart patterns suggests this is more than a fleeting rally—it’s the start of a multiyear realignment in global currency dynamics.

The USD’s Structural Challenges

Rosenberg’s bearish stance on the USD hinges on three pillars: fiscal imbalances, inflation expectations, and monetary policy. The U.S. federal deficit, projected to remain elevated due to persistent spending and tepid revenue growth, is a drag on confidence. Meanwhile, the Federal Reserve’s struggle to tame inflation without triggering a severe recession has left the door open for rate cuts, which typically weaken the currency.

The technical picture reinforces this view. Rosenberg points to the USD index, which has been in a downtrend since late 2021, breaking key support levels in 2023. This secular bear market, he argues, could extend into 2025, with the USD facing further headwinds from geopolitical fragmentation and declining global demand for the greenback as a reserve currency.

CAD’s Tailwinds: Commodities, Trade, and Rates

Canada’s economy, by contrast, is riding a commodities supercycle. The nation’s energy and metals exports—critical to global decarbonization and manufacturing—are benefiting from sustained price strength. Rosenberg highlights crude oil, which has averaged $85/barrel in 2023, up from $65 in 2020, as a key driver. With Asia’s energy demand surging and North American shale production plateauing, Canada’s oil sands and liquefied natural gas (LNG) projects are positioning it as a net beneficiary.

This commodity boom is also reshaping Canada’s trade balance. Rosenberg notes that the nation’s surplus with non-U.S. markets has widened by 40% since 2020, reducing reliance on a sluggish U.S. economy. Meanwhile, the Bank of Canada’s policy rates, though set to decline from their peak, are likely to remain higher than the Fed’s for years—a divergence that historically supports CAD strength.

Technical Analysis: A Path to Parity

Rosenberg’s technical charts suggest the CAD/USD pair is in a multiyear ascending trend channel. The current resistance zone at 1.25-1.30 USD/CAD, if breached, could accelerate toward parity. A Fibonacci retracement analysis of the 2016-2020 bear market shows that the 61.8% retracement level aligns with 1.00, a psychological threshold that could attract speculative buying.

Risks and Considerations

Near-term volatility remains a concern. Rosenberg warns that U.S. election cycles, oil price dips, or a faster-than-expected Fed pivot could delay progress. For instance, a sudden drop in oil prices to $60/barrel—possible if demand from China falters—might temporarily push CAD/USD back above 1.30. However, he argues these are tactical blips in a strategic trend.

Conclusion: A Structural Turn

The case for CAD parity by 2025 is compelling when viewed through Rosenberg’s lens. Commodity prices, trade dynamics, and interest rate differentials all favor the Canadian dollar, while the USD grapples with structural overvaluation and policy constraints. Historical precedent supports this: the last secular bear market for the USD (2002-2011) saw the euro rise from $0.86 to $1.60, and similar momentum could materialize for CAD.

Crunching the numbers: If CAD/USD reaches parity by 2025, it would mark a 28% appreciation from its 2023 average of 1.34. This would align CAD with its fair value based on the Bank of International Settlements’ real effective exchange rate model, which currently undervalues CAD by 10%-15%. Investors ignoring this shift risk missing a generational currency play. As Rosenberg concludes, “This isn’t a trade—it’s a long-term structural realignment.”

For now, the path to parity is clear, but the journey will be bumpy. Stay patient.