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.