06:41 AM EST, 11/14/2025 (MT Newswires) -- The Canadian dollar (CAD or loonie) has been pulled lower by a combination of a renewed widening in United States/Canada short-term rate differentials, ongoing trade uncertainty with the United States and a spike in market volatility through early November, said Scotiabank.

The Bank of Canada's October rate cut is the last in the cycle, stated Scotiabank. Monetary policy is at the lower end of the neutral range and policymakers have made it clear that rate cuts can only do so much to help the economy adjust to structural trade challenges.

Loose monetary policy and significant fiscal stimulus provided by the federal budget will help backstop Canadian growth, noted the bank. U.S./Canada interest rate differentials should narrow substantially through 2026 as the Federal Reserve eases further and, Scotiabank expects, the BoC tightens policy late in that year.

This should lift the CAD, according to the bank. Scotiabank's forecasts anticipate the policy rate gap narrowing significantly through 2027.

The bank is bearish on USD/CAD, targeting 1.40 for Q4 2025, 1.33 for Q4 2026 and 1.30 for Q4 2027.

Scotiabank's macro-economic forecasts -- particularly regarding monetary policy -- support the outlook for some strengthening in the CAD over the medium-to-longer term.

The bank concedes that trade policy risks are a clear and present danger for the CAD in the coming year.