The US dollar is broadly stronger today and that briefly pushed it to the highest against the Canadian dollar since April 2025. The peak was 1.4299 (or 0.6993 CAD). The 70-cent level is a sensitive one domestically and a clean break of it could give Canadians another reason not to travel south this winter.
The loonie had made strong gains yesterday as the post-jobs report weakness reversed. Friday’s data saw Canada unexpectedly shed jobs but a closer look showed it was driven by government job losses in healthcare and education. The latter is a category that’s particularly hard to seasonally adjust for in September due to school restarting while neither is indicative of underlying economic strength. That said, there have been mixed indications on the Canadian economy and the housing sector in much of the country appears to be in the midst of another leg down.
Where it gets interesting is how central banks are reacting. In the year ahead, there are 97 basis points of hikes priced in for the Bank of Canada and 92 basis points for the Federal Reserve. Today’s US CPI report narrowed that gap and if we see the Canadian economy stumble or the US accelerate further, then a real USD-positive divergence could open up.
Note that the starting points are already highly divergent with the Fed at 3.75-4.00% and the Bank of Canada at 2.25%. That extends further out the curve where Treasuries are paying notably more than Government of Canada bonds.
As for the USD/CAD chart, it’s telling that it’s pushing through the 2026 highs. That doesn’t leave much in the way of resistance until the Liberation Day peaks in the 1.45-1.47 range come into play.
USDCAD weekly:
If we get into the mid-1.40s, I would be tempted to lean against that resistance as I expect the money to flow out of the US when the AI boom ebbs. A better trading relationship between Canada and the US could also turn the pair.
In terms of the fundamentals, the Canadian dollar has been buffered by commodity prices. Unfortunately, the Western Canadian Select oil discount has blown out recently, meaning that Canadian producers largely won’t be getting global prices for their crude. PM Carney announced a new pipeline to the west coast but it will take 5-10 years to build after the usual Canadian court challenges and litigation.
For oil, the medium-term risks may be more to the downside if the US or Iran is forced to accept a peace in Hormuz. I tend to think the timelines for ‘normalized’ oil prices are long because of the extensive inventory rebuilding that will need to happen but any peace will be oil-negative for a time.
In terms of consumers, spending has held up well in both places and RBC today is out with fresh Canadian cardholder data for September. They note that core sales rose 0.5% m/m led by discretionary categories. Entertainment and arts spending increased 1.4%, travel rose 1%, and dining grew a more modest 0.3%.
High gasoline prices are obviously digging into budgets but so far they haven’t cracked and that could give the Bank of Canada fodder to hike further from here. I’m skeptical that they will hike the four full hikes priced into the curve through 2027.
This article was written by Adam Button at investinglive.com.
