The Canadian dollar has fallen by 5.76% against the US dollar this year, reaching a low of 1.388 (a rare occurrence since May 2020). It seems like the US dollar is flexing its muscles, mainly due to the following reasons:

1️⃣ **The Federal Reserve is more aggressive**: The US benchmark interest rate is 4%, while the Bank of Canada is only at 3.75%, making the US dollar more attractive to investors.

2️⃣ **Dollar Safe-Haven Halo**: The Ukraine war + global inflation + geopolitical risks have made the dollar the preferred safe-haven, with the dollar index (DXY) rising 14% this year.

3️⃣ **Canadian Dollar Oil Decoupling**: In previous years, rising oil prices could drive the Canadian dollar, but this has failed this year.

4️⃣ **Canada's Economy Underperforming**: OECD predicts Canada will perform the worst among developed countries in the next decade.

**What will the future hold?** It largely depends on the U.S. inflation data. In October, the U.S. CPI unexpectedly fell to 7.7% (expected 8.2%), and on that day, the Canadian dollar rebounded by 1.44%, indicating that the market expects the Federal Reserve may stop its aggressive interest rate hikes.

Predictions from institutions vary: Wallet Investor is optimistic about the Canadian dollar, expecting the USD/CAD to drop to 1.267 by the end of 2025; however, ING Group is more conservative, predicting it to be 1.30 in Q4 2025.

**Bottom line**: The Bank of Canada has not ruled out the possibility of further significant interest rate hikes, and 2023 appears to be a window for reversal.