At a glance
- USD/CAD has retreated sharply from Wednesday’s peak, its strongest level since April 2025, and is now trading close to a two-week low.
- Expectations of an October US rate rise have eased, with markets now seeing December as more likely.
- The Canadian Dollar has some support from higher oil prices and a firmer tone from the Bank of Canada, although Canada’s economy has softened.
- Two key dates lie ahead: Canadian inflation on Monday 19th October, and both central bank decisions on Wednesday 28th October.
- For Canadian Dollar buyers, rates remain close to the strongest levels this year, but have moved away from this week’s high.
What has happened
Earlier this week, USD/CAD reached its highest level since April 2025. That was good news for businesses converting US Dollars into Canadian Dollars, as each US Dollar was buying more.
Since Wednesday, the rate has pulled back sharply, and USD/CAD is on course for its first weekly fall in five weeks.
To put that in context, on a payment of US$250,000, the move from this week’s high to today’s level means receiving around CAD$3,500 less.
Why the US Dollar has weakened
The move appears to reflect changing expectations for US interest rates.
US inflation rose to 3.7% in September, and producer prices rose 1.3% on the month, the largest increase in four and a half years. On their own, those figures would normally support the Dollar.
But Fed officials have indicated they would prefer to see more evidence before raising rates again. Fed Chair Kevin Warsh gave no guidance on the timing of the next move in his latest remarks.
Markets now see only around a 30% chance of a rise on 28 October, and view December as more likely.
Weakness in US technology shares has added to the pressure. Investors moved money into US government bonds for safety, which lowered US borrowing costs and reduced some of the Dollar’s interest rate advantage.
Shorter-term US borrowing costs, which follow expected Fed moves most closely, have fallen back far enough to undo the whole rise that followed Wednesday’s inflation figures. In other words, markets have looked past the hot data.
Where the Fed stands
Nearly all Fed officials think further rate rises will probably be needed, but most want more data before acting.
That leaves the Dollar sensitive to every new US release. A run of strong figures could bring October back into play, while softer data would reinforce the shift towards December.
For Canadian Dollar buyers, that means USD/CAD could move sharply in either direction over the next fortnight.
The Canadian side
Oil is Canada’s largest export, and higher prices driven by tensions in the Middle East have provided some support to the Canadian Dollar.
Bank of Canada Governor Tiff Macklem has also struck a firmer tone, saying it becomes harder to look through higher energy prices the longer they last. His comments have kept the possibility of a future rate rise in view, although September’s sharp fall in employment has reduced the likelihood of an increase this month.
The economy lost 68,300 jobs in September, which helped push USD/CAD close to its high earlier this month.
The two dates that matter most
Canadian inflation figures for September are published on Monday 19th October. Inflation was 3% in August. A higher reading would strengthen the case for a Bank of Canada rate rise later this year and support the Canadian Dollar. A softer one would add to the argument for waiting.
Then on Wednesday 28th October, the Bank of Canada and the US Federal Reserve both announce their interest rate decisions. The Bank of Canada also publishes its Monetary Policy Report, with updated forecasts for growth and inflation. It is the biggest single day of the month for USD/CAD.
If the Bank of Canada signals a greater willingness to raise rates while the Fed holds, the gap between the two would narrow and the Canadian Dollar would likely strengthen. If the Fed surprises with a rise, or the Bank of Canada sounds more cautious, the US Dollar could quickly regain ground.
What could push USD/CAD back up
The picture is not one-way. A few things could see the US Dollar recover against the Canadian Dollar:
- Trade tensions between the US and Canada, which tend to weigh on the Canadian Dollar.
- Further weak Canadian data, which would reduce the chance of a Bank of Canada rate rise.
- Political uncertainty, including the new minority government in Quebec and Alberta’s referendum on Monday.
- Escalation in the Middle East, which could increase demand for the US Dollar, although the resulting effect on oil prices may provide some offsetting support to the Canadian Dollar.
- Stronger US figures, which could revive expectations of an October Fed rise.
What it means for Canadian Dollar buyers
For businesses selling US Dollars to buy Canadian Dollars, rates remain close to the strongest levels seen this year, although USD/CAD has moved away from this week’s high.
The Canadian inflation release on Monday and both central bank decisions on 28th October could produce further volatility. Businesses with confirmed requirements may therefore wish to consider securing part of their exposure while rates remain relatively favourable, while leaving some available should USD/CAD recover.
Forward contracts can provide certainty for future payments, while target orders can automatically secure a preferred level if the rate improves. The appropriate approach will depend on the amount, payment date and budgeted exchange rate.
Key dates
- Monday 19th October: Canadian inflation figures; Alberta’s non-binding referendum on a possible path towards separation
- Wednesday 28th October: Bank of Canada decision and Monetary Policy Report; US Federal Reserve decision
- Tuesday 3rd November: US midterm elections
- Wednesday 9th December: US Federal Reserve decision
If you would like to talk through how these moves could affect your business, please speak to the Lamera dealing team.
Frequently asked questions
Why has USD/CAD fallen this week?
Markets have scaled back expectations of an October US interest rate rise after Fed officials signalled they want more data before acting. Lower US borrowing costs and higher oil prices have also supported the Canadian Dollar.
Will the Bank of Canada raise interest rates in October?
A rise this month looks less likely after Canada lost 68,300 jobs in September, although Governor Tiff Macklem’s comments have kept a future increase in view. The decision is on 28th October, alongside new forecasts.
How do oil prices affect the Canadian Dollar?
Oil is Canada’s largest export, so higher oil prices usually support the Canadian Dollar. Tensions in the Middle East have kept prices high this month.
What does a lower USD/CAD mean for businesses buying Canadian Dollars?
Each US Dollar buys fewer Canadian Dollars, so the cost of upcoming Canadian Dollar payments rises. On US$250,000, this week’s move has meant around CAD$3,500 less.