The U.S. dollar is no longer behaving like the reliable safe-haven currency investors once depended on, according to foreign exchange strategists. As geopolitical tensions evolve and markets reassess the outlook for U.S. interest rates, the Canadian dollar has gained ground against the greenback despite signs of weakness in Canada’s economy.
BNN Bloomberg spoke with Jayati Bharadwaj, head of FX strategy at TD Securities, about why the U.S. dollar has struggled to sustain rallies, why the loonie continues to lag other commodity-linked currencies, and how weak Canadian labour market data could influence the Bank of Canada’s rate path.
Key Takeaways
- The U.S. dollar has experienced sharper selloffs than rallies this year, reflecting weaker investor confidence in its traditional safe-haven role.
- The Canadian dollar has benefited from broad U.S. dollar weakness and elevated oil prices, though gains have been limited compared with other commodity currencies.
- Softer Canadian economic data, including rising unemployment and weaker job growth, is weighing on expectations for additional Bank of Canada rate hikes.
- Analysts expect foreign exchange markets to remain volatile in the second quarter as investors monitor geopolitical developments and inflation trends.
- Markets are increasingly focused on inflation data and central bank policy expectations as key drivers for currency movements in the second half of the year.
Read the full transcript below:
LINDSAY: Our next guest says the U.S. dollar has lost its safe-haven status and the Canadian dollar has benefited. But newly released data from Statistics Canada shows Canada lost 18,000 jobs in April, while the unemployment rate rose to 6.9 per cent. Could that affect the loonie? Let’s find out more. Joining us now is Jayati Bharadwaj, head of FX strategy at TD Securities. Great to have you with us. Thanks so much.
JAYATI: Thank you so much for having me.
LINDSAY: To start, how is it that the U.S. dollar has lost its safe-haven status?
JAYATI: I would say the dollar is unfortunately no longer the effortless haven that it used to be, and that’s very clearly evident in the market price action since the start of the year. If you look at the broad dollar chart since the beginning of the year, you’ll see dollar selloffs have been much sharper and more pronounced than any dollar rallies.
In fact, the dollar selloff we saw in mid-January, and another sharp selloff when negotiations started, were much more pronounced than any rally during an actual geopolitical conflict. I think that’s a very telling sign that investor perception is no longer to be long the U.S. dollar, even though the U.S. is net energy independent and broadly energy neutral.
This is very different from previous geopolitical shocks. Even during the Russia-Ukraine conflict in 2022, the dollar rallied much more strongly than it has now. That tells you investors no longer see the U.S. dollar as the effortless haven it once was.
LINDSAY: That’s so interesting. On the flip side, what does that mean for the Canadian dollar?
JAYATI: The Canadian dollar has clearly benefited from broad U.S. dollar weakness, especially since negotiations started. Canada’s economy also gets a positive terms-of-trade boost from elevated oil prices, which is why we have a relatively positive outlook for the Canadian dollar for the rest of the year.
Although I would caveat one thing: the Canadian dollar is not appreciating as strongly from the positive oil-price shock as it once did, because the link between the Canadian dollar and oil prices has weakened since about 2014. Investment in Canada’s oil and gas sector has not kept pace with rising oil prices, partly because of increasing ESG concerns.
So the Canadian dollar is still benefiting marginally from higher oil prices, but not to the same extent we saw before 2020. A lot more Canadian dollar strength now likely depends on the Strait of Hormuz reopening.
LINDSAY: Interesting. So when it comes to the Canadian dollar stacking up against other global currencies, what does that look like right now?
JAYATI: Unfortunately, the Canadian dollar is moderately underperforming other commodity currencies and peers such as the Norwegian krone and the Australian dollar. Markets are struggling to determine how long this conflict will last, which means they’re paying closer attention to the current macroeconomic backdrop in each economy.
Unfortunately for Canada, the data has softened. As you mentioned earlier, this morning’s labour market data was weaker. Employment, GDP and other economic indicators have been softer compared with economies such as Australia and Norway, which are also commodity dependent.
That’s why markets are hesitant to push the Canadian dollar significantly higher. Current macroeconomic momentum is outweighing any future terms-of-trade boost because markets still don’t know how long this conflict will last.
Markets are also debating whether the Bank of Canada will be able to raise interest rates, even while rate hikes are being discussed in the eurozone and Australia. The Reserve Bank of Australia has already been hiking rates, but markets are struggling to see whether the Bank of Canada can do the same given the softer macroeconomic backdrop.
We think the Canadian dollar will continue to benefit if the U.S. dollar weakens further and if geopolitical headlines improve, but it will likely continue to underperform peers where macroeconomic momentum is stronger.
LINDSAY: So that’s the outlook for the Canadian dollar. What’s your outlook over the next quarter for the U.S. dollar?
JAYATI: For the next quarter, we think the U.S. dollar will remain very choppy. At this point, markets would likely need something as significant as a Strait of Hormuz reopening headline for another major move because the dollar is already back to pre-conflict levels. A substantial amount of the geopolitical risk premium has already been priced out.
Now the focus is on two things. First, whether the Strait of Hormuz reopens, which is obviously difficult to predict. Second, the inflation pass-through into the U.S. economy.
The Federal Reserve is one of the few major central banks where markets are not pricing aggressive rate hikes compared with others. Markets are still pricing hikes for the Bank of Canada, for example. So now it remains to be seen whether the U.S. economy shows enough momentum and inflation pressure for markets to start pricing in more hikes from the Fed, which could support the U.S. dollar in the near term.
Defensively, we think the dollar can remain supported in the second quarter, but that’s not our longer-term call. Longer term, we still expect the dollar to weaken once geopolitical risks ease further.
LINDSAY: I want to ask you about the jobs reports we saw this morning, both in the U.S. and Canada. How might those numbers affect the loonie?
JAYATI: We already saw the loonie weaken following those reports. The U.S. employment report was reasonably strong, although wage growth was softer, which limited the market reaction.
We’ve been telling clients that because so much focus is now on the oil-price shock, inflation matters more than headline payroll numbers. That’s why we think next week’s U.S. CPI report will be a much bigger market driver.
The broader U.S. dollar remained relatively unchanged despite the payrolls report, but the loonie underperformed because Canada’s unemployment rate rose by two-tenths of a percentage point and the economy lost 18,000 jobs, mostly in full-time positions.
That raises additional concerns about Canada’s economic momentum. Markets are currently pricing in almost two Bank of Canada rate hikes by year-end, but our macro team believes the central bank may remain on hold because of softer economic data and labour market weakness.
If that view proves correct and markets begin pricing out those expected rate hikes, that could weigh further on the Canadian dollar going forward.
LINDSAY: Jayati Bharadwaj is head of FX strategy at TD Securities. Thanks so much for joining us today.
JAYATI: Thank you.
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This BNN Bloomberg summary and transcript of the May 8, 2026 interview with Jayati Bharadwaj are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
