Canadian Dollar vs US Dollar: Recovering from The Bearish Hugs

In previous posts, we have already begun to look at the key factors that have driven the U.S. outperformance over the past decade.

• The U.S. market dominance is largely due to the rapid rise of tech giants (such as Apple, Microsoft, Amazon, and Alphabet), which have benefited from strong profit growth, global market reach, and significant investor inflows.
  
• Underperforming Internationally
  
• Markets outside the U.S. have faced challenges such as multiple stifling sanctions and tariffs, slowing economic growth, political uncertainty (especially in Europe), a stronger U.S. dollar, and the decline of high-growth tech sectors.
  
• The Valuation Gap
  
• By 2025, U.S. equities will be considered relatively expensive compared to their international peers, which may offer more attractive valuations in the future.
  

Recent Shifts (2025 Trend)

Since early 2025, international equities have begun to outperform the S&P 500, and European and Asian equities have regained investor interest. Global market currencies are also heavily dependent on the US dollar.

Factors include optimism around the following three main themes.

DE-DOLLARIZATION. DE-AMERICANIZATION. DIVERSIFICATION.

De-dollarization is the process by which countries reduce their reliance on the US dollar (USD) as the dominant global reserve currency, medium of exchange, and unit of account in international trade and finance. This trend involves a shift away from the centrality of the US dollar in global economic transactions and towards alternative currencies, assets or financial systems.

Reasons for De-dollarization

The move towards de-dollarization is driven by geopolitical and economic factors:

• Backlash against US economic hegemony: The US often uses the dollar's dominance to impose sanctions and exert political pressure, encouraging countries to seek financial sovereignty.
  
• Rise of emerging economic powers: Emerging economies such as China and groups such as the BRICS are seeking to reduce their vulnerability to US influence and promote regional integration and alternative financial infrastructures.
  
• Geopolitical tensions: Conflicts such as the war in Ukraine have increased efforts by countries such as Russia to withdraw dollars from their reserves to avoid sanctions.
  

Summary

De-dollarization is a complex, ongoing process that reflects a gradual shift away from the global dominance of the US dollar. It involves diversifying reserves, using alternative currencies and assets, and creating new financial systems to reduce reliance on the dollar.

Driven by geopolitical tensions and the rise of emerging economic powers, de-dollarization is challenging the entrenched role of the dollar, but is unlikely to completely replace it anytime soon.
Instead, it is leading to a more multi-polar monetary system in international finance, increasing demand for alternative investments in the US.

Technical Test

The main technical chart is presented in a weekly perspective, reflecting the performance of the Canadian dollar against the US dollar CADUSD over the long term.

With the positive dynamics of the relative strength indicator RSI(14) continuing, a breakout of flat resistance near the level of 0.72 is noted, with the prospect of a possible price increase to 0.80, parity in the currency pair and strengthening of the Canadian dollar to historical maximums, in the horizon of the next five years.

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Best wishes,
PandorraResearch Team 😎