Executive Summary
USD/CAD trades at 1.3929 as of March 31, 2026, with the Canadian dollar caught in a stagflationary crosscurrent that divides the tactical and strategic outlooks. The BoC's Overnight Rate at 2.25% sits at the bottom of its own neutral range after nine consecutive cuts, while the economy contracted -0.6% annualised in Q4 2025 and shed 84,000 jobs in February — yet WTI crude above $103/bbl delivers a massive terms-of-trade windfall to Canada's 4.4%-of-GDP net energy surplus. CFTC positioning has undergone a dramatic reversal from a 4.5-year net-long extreme in mid-February to net short, clearing the crowded-trade overhang and creating room for renewed accumulation. The BoC's March 18 removal of "rate remains appropriate" language in favour of "ready to respond as needed" opens the door to hikes if energy-driven inflation broadens — Deputy Governor Kozicki's March 2 statement that monetary policy may need to tighten even when the economy is weak was the clearest hawkish signal of the cycle. The tactical picture leans mildly bearish CAD (conviction 2/5) as risk-off USD demand, weak domestic data, and the April 6 Iran/Hormuz deadline dominate near-term, but the strategic outlook turns mildly bullish CAD (conviction 3/5) as the terms-of-trade windfall, positioning reset, and BoC hawkish optionality assert themselves over 1–6 months. Bank consensus targets USD/CAD at 1.34 by year-end, 4% below current spot — the USMCA joint review beginning July 1 is the key binary risk that could derail CAD's structural recovery.