There are two big events to watch for in 2026 that will swing the outlook for the loonie, including one that could be just days away:1) Supreme Court decision on tariffsThe SupremeCourt has until late June to decide on the legality of US tariffs on Canada butbecause this was an expedited hearing, we expect a decision this month or in February.The decision itself is important, especially in terms of possible refunds but thereis a critical signaling mechanism here. The vote margin and the argument willtell us about what will happen if Trump tries to put on tariffs in other ways,which is something administration officials have said they will do. If it lookslike Trump will largely lose the power of tariffs then I’d expect a largepositive reaction in risk assets and anything global growth related, likecommodities. I would expect gold to decline.On the flipside, if tariffs are allowed to continue then it starts to look like theSupreme Court is a rubber stamp for whatever Trump wants to do and you can useyour imagination around that but none of those outcomes are good for globalgrowth and I’d expect to see capital flight out of the US. It probably alsosets up another big rally in gold and precious metals in 2026.There isplenty of nuance and murky middle territory as I don’t expect either outcome tobe entirely straightforward but I expect the Supreme Court to defeat tariffsand that should be good for the Canadian dollar as it tees up the second big question:2) USMCANow on Dec17-18, the USTR seemed to indicate that it would pursue staying in theagreement and extending it but it would be contingent on changes.This flewunder the radar because it was so close to year end but it was generally goodnews. The US is going to lean on dairy concessions again but the vast majorityof the 1514 comments from stakeholders were supportive of the agreement.Unfortunately,the USTR decided to do most of the briefing behind closed doors but reportsfrom Senators in those hearings were positive.Greer “came out with a very clear statement that they aresupportive of the three-nation agreement,” Republican Senator James Lankfordsaid. A WSJ report citing “over a dozen” lawmakers also noted that Greer didn’tbring up exiting the agreement.What’sperhaps lost in all the tariff angst is that the US saying it intends to leaveand then triggering the sunset clause Article 34.7) in July doesn’t end thedeal. This mechanism is a review mechanism and it would simply kick off annualreviews for the next decade rather than a 16 year extension. The agreementwould stay in force.Now each countryhas a separate mechanism to leave the agreement on six months notice at anypoint (Artilce 34.6). Trump could have triggered this at any point and hasn’t.Now maybe he goes nuclear and does that but why now?The bottomline here is that there is some uncertainty but the issues the US outlined aren’tcritical for the Canadian economy. Dairy is a small part of the economy andeven on steel, the concerns highlighted were on the Mexico side. Canada cansimply play the annual review game. There isupside here as well as many Senators are pushing for a ‘fortress North America’strategy that mainly blocks China but could also target other foreign goods. Ifthat ends up being the case, it’s ultimately a boon for Canada as it wouldaffirm zero tariffs. Ultimately,as this process plays out, expect some intense bluster from Trump but I thinkthose are dips to buy. By year end 2026, we should be on the other side of thisand that will mean certainly plus a very likely drop in steel/aluminum tariffsand maybe even lumber. Now it willtake some courage but unless you’re in one of those industries or dairy, Ithink you can tune out negotiations.There are also three other things I think will drive the loonie this year:1) Commodities2025 was agood year for commodities and 2026 should be the same. Rates are coming downand global growth looks solid. There is some momentum here with oil as the bigexception. It doesn’t look great for oil this year but it should be the year wefind a bottom. US production has flatlined and the market has a pretty goodview into OPEC. We’re a couple years from potential oil market deficits, andthat’s without OPEC holding back barrels. I think the clearest view on that isCanadian oil company stocks. They are much higher than they were in April orany other point in the past few years when crude prices were around these levels.I think that reflects a growing long-term belief that there’s value in the oilsands. 2) PoliticsCoupledwith that commodity outlook, Canada looks like a much better place to investthan it did a year ago. The Carney government is trying to make it easier fornatural resources. There’s work to do but removing Stephen Guilbault fromcabinet is a sign of which way it’s heading. Moreover, commodity projects takemany years but if you look at the Canadian political landscape you can have alot of confidence that it will either be Carney’s Liberals or Conservatives incharge. There aren’t many jurisdictions where you can find that sort ofcertainty. If you lookat 2025, the loonie gained about 5%.That puts it in the middle of the pack of G10 currencies. I would argue thatunderprices some of the positive political changes in the past year. 3) Housingand ConsumersA big riskI outlined last year was in Canadian housing and that unfolded about how Iexpected. Toronto housing prices fell another 6% and 2026 isn’t looking anybetter. The big question though was about how consumers would respond to the decliningwealth effect. What happened was that it was very limited. People saw theirhousing equity decline but didn’t spend any less. A big part of that is thatfew Canadians tapped the gain in housing equity since 2018. I think theclearest sign that the market has moved past housing concerns is theperformance of bank stocks in 2025. Once the dynamic around consumers becameclearer at mid-year it turned into a big year for banks, and the TSX ingeneral.This yearis a similar challenge because the ultra-low mortgage rates from 2021 arerolling over but we can see the light at the end of that tunnel now and it’ssurprisingly good. I would say the biggest surprise of 2025 was the strength ofthe Canadian consumer despite the uncertainty and I suspect a lot of that isdemographics and baby boomer spending but that’s certainly not all of it andthe picture has been good. If it holds up through mid-year, I think you couldsee the Bank of Canada begin to talk about rate hikes and already the market ispricing in about a 65% chance of a hike late this year.Add it all up and I think you can get another 5% rally in the loonie in 2026. That USD/CAD at 1.3070 or CAD/USD at 76.5 cents. This article was written by Adam Button at investinglive.com.