The Canadian dollar has weakened sharply in recent weeks, trading above 1.42 per US dollar in early October after sliding from near 1.3760 in mid-September, as diverging central bank paths, soft domestic jobs data and Middle East-driven oil swings combine to pressure the currency.
According to Baystreet.ca market commentary, USDCAD opened at 1.4264 on October 8, with the loonie trading in a 1.4244-1.4271 overnight range, before easing slightly to open at 1.4229 the following day. In loonie terms, that move has taken the Canadian dollar from roughly 72.5 US cents at the start of September to about 70.3 US cents by month’s end, per Baystreet’s October outlook.
Why the Fed-BoC Gap Is Widening
The core driver, according to Baystreet’s analysis, is a widening interest-rate spread between the United States and Canada. The Federal Reserve raised rates 25 basis points to 4.00% on September 16, with Chair Kevin Warsh saying the Fed was “removing accommodation,” and minutes from that meeting showed every member backed the move while flagging a likely additional hike before year-end. CME rate futures were pricing a 70% chance of a further 25 bp increase to 4.25% in December, Baystreet reported, with Fed Governor Christopher Waller telling an audience in Istanbul that 3% core PCE inflation is “too high” and that more hikes should be expected.
The Bank of Canada, by contrast, held its overnight rate at 2.25% on September 2 — its seventh consecutive hold. Governor Tiff Macklem warned that “upside risks to inflation have increased, while new tariffs make growth prospects more uncertain,” but the loonie’s gains on that message lasted only about a week before the Fed’s hawkish tilt took over, Baystreet noted.
Labour Market and Tariffs Add Pressure
Canadian employment data has reinforced the case for the Bank of Canada to stay on hold. The economy shed 41,700 jobs in August, with unemployment steady at 6.4%, according to Baystreet. Economists were expecting a modest gain of roughly 7,000 jobs in the September report, with the jobless rate forecast to tick up to 6.5%. Baystreet noted that such a print “won’t do a thing to coax the Bank of Canada off the sidelines.”
Trade tensions have also weighed on the currency. Canada’s C$27.6 billion in counter-tariffs took effect September 8, followed by new US restrictions on Canadian motorcycles, alcohol and some dairy products, Baystreet reported. Trade talks between Ottawa and Washington remain stalled; President Trump said Canada “has been very difficult to deal with” and that he was not satisfied with the state of negotiations. The Toronto Stock Exchange lost 2.2% in September, compared with a roughly flat S&P 500.
Oil and Geopolitics Add Volatility
Crude prices, a traditional support for the Canadian dollar, have swung widely. WTI topped $105 in mid-September amid Middle East supply disruption fears before easing to the $89 area by month’s end, then trading in a $90.08-$91.40 range in early October, per Baystreet. Prices have moved on reports tied to potential US strikes on Iran — first threatened, then reportedly delayed by President Trump until after the November 3 US midterms — alongside an Iranian ceasefire proposal tied to the Strait of Hormuz that Washington rejected while keeping talks alive.
What’s Next for the Loonie
Baystreet’s October outlook flags October 28 as a pivotal date, when the Bank of Canada and Federal Reserve are scheduled to announce rate decisions simultaneously. Canada’s Labour Force Survey on October 9 and CPI data on October 19 will shape the Bank’s decision, the outlet said, noting the Bank has “little appetite to tighten into a softening labour market while tariffs bite,” even as Macklem’s inflation warning remains in play.
Forecasts compiled by Baystreet from Canadian banks show a range of views for where USD/CAD may settle. Scotiabank projected 1.3700, BMO 1.3800, CIBC 1.4100, TD Bank 1.3900, and National Bank 1.3700 for the near-term quarter, with most banks expecting the pair to ease further by the following quarter. These projections are described as subject to change and based on mid-market rates.
For consumers, the exchange rate’s movements also have everyday financial implications. Ratehub.ca notes that most Canadian credit cards charge a foreign transaction fee of around 2.5% on purchases made in foreign currency, meaning that cross-border shopping or travel costs can add up regardless of where the exchange rate itself settles — a reminder that currency swings affect not just traders but everyday consumer costs tied to US-dollar spending.
This article is for informational purposes only and does not constitute financial, investment, or legal advice. Consult a licensed financial advisor before making investment decisions.
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