Canadian Dollar Appreciates

The Canadian dollar strengthened past C$1.42 per US dollar, rebounding from an 18-month low of 1.428 on October 12th amid a broad decline for the greenback and hawkish bets for the bank of Canada. Strong Canadian manufacturing sales boosted expectations of a Bank of Canada rate hike at its next meeting, with a majority of the market positioned for the central bank's first hike this cycle. Manufacturing sales rose 1.5% month-over-month to C$79.9 billion in August 2026, beating expectations for a 1.1% increase and marking the sharpest rise since April. However, the upbeat data contrasted with signs of a cooling economy, as employment fell by 68,300, far below expectations for a 7,000 increase, pointing to a weaker start to the third quarter. Uncertainty over US-Canada trade relations also persisted.

The Canadian dollar weakened toward 1.43 per US dollar in October, the lowest in 19 months, as week labor data strengthened bets that the Bank of Canada will refrain from delivering a rate hike. Employment fell by 68,300, missing expectations for a 7,000 increase, while the unemployment rate edged up 0.1 percentage point to 6.5%. Recent data also pointed to a cooling economy. Real GDP rose 0.2% in August, as gains in mining and quarrying and retail trade partly offset a decline in oil and gas extraction. GDP was essentially unchanged in July, ending a three-month growth streak. Although August’s result matched expectations, it highlighted a weaker start to the third quarter. Meanwhile, uncertainty over US-Canada trade ties persisted after US President Donald Trump said Canada had been difficult to deal with, casting doubt over the prospects for a new trade deal.

The Canadian dollar weakened slightly to around 1.42 per US dollar in October, its lowest level in about 12 weeks, as stalled domestic growth and US dollar strength kept the loonie under pressure. Advance estimates showed real GDP increased 0.2% in August, with gains in mining and quarrying and retail trade partly offset by a decline in oil and gas extraction. GDP was essentially unchanged in July, ending a three-month run of growth. The result was in line with expectations but highlighted a weaker start to the third quarter. Soft GDP reinforced expectations for the Bank of Canada to hold rates. The US ban on various Canadian goods imports also took effect. Meanwhile, the US dollar climbed against a basket of major currencies as markets increased bets on further Federal Reserve rate increases. Expectations for a widening US-Canada interest-rate differential are reinforcing the greenback’s advantage over the loonie.