TD: The next risk to the dollar comes from Canadian pension funds stepping up their hedging efforts

TD Securities believes the dollar will fall further as Canadian investors, one of the largest holders of US equities, face pressure to hedge more of their dollar assets in currencies. "Since the start of the year, the US dollar has become less attractive as a safe haven, leading to increased demand for these funds to hedge their long exposure to US assets," TD Securities team Jayati Bharadwaj, Mark McCormick and Linda Cheng wrote in a report on Friday. Further dollar falls "will further prompt Canadian investors to adjust their hedging policies, which in turn could place further downward pressure on the pair." The Canadian dollar has risen more than 5 per cent against the dollar in the first half of 2025, its best start to the year in almost a decade. TD strategists predict further gains for the Canadian dollar ahead. They expect the Canadian dollar to rise to 1.31 against the dollar by December, which would be its strongest level since 2022 and about 4% above its current level of about 1.3665. The TD team estimates that Canadian pension funds - some of which have an explicit policy of underhedging U.S. assets - hold about 10% to 15% of Delta positions. Overall, Canadian investors hold about $1.80 trillion in U.S. stocks. A 5% rise in Delta margin could result in selling pressure of about $90 billion against the Canadian dollar, analysts wrote.