Canadian Dollar Pulls Back From Six-Week High as Rate Decisions Loom

Key Facts

The Canadian dollar retreated from a six-week high as the Bank of Canada and US Federal Reserve rate decisions scheduled for this week approach. FXStreet reported that the US dollar/Canadian dollar pair traded near 1.4023 on October 26, after falling to 1.3969 on Friday, October 23. EL7 daily closing data showed the pair closed at 1.40011 on October 23 and then at 1.40448 on October 26. These levels reflect different measures: the trading low and intraday indication cited in the FXStreet report, versus the daily close recorded by EL7. The move comes as traders focus on the potential divergence between monetary policy paths in Canada and the United States.

In Canada, most economists surveyed by Reuters expected the Bank to raise its overnight rate by 25 basis points to 2.50% at its October meeting, according to FXStreet. That remains a poll forecast, not an announced decision by the Bank. Reuters said the increase, if it occurs, would be the first since July 2023 and the first change in the policy rate in a year. The Bank faces a trade-off between containing the pass-through of higher energy costs to food and housing prices and the effect of a rate increase on borrowers. Reuters reported that higher borrowing costs could weigh on consumers and put pressure on an economy that is weakening. It also said the last two employment reports were weak, erasing the job gains recorded during the year up to that point.

By contrast, the probability that the Federal Reserve would hold interest rates at its October meeting stood at 90.6%, according to the CME FedWatch tool, as cited by FXStreet. The Federal Open Market Committee is scheduled to meet over two days, on October 27 and 28, with the Federal Reserve chair due to hold a press conference on October 28 at 2:30 p.m. Eastern Time. The Board's calendar did not specify when the decision itself would be announced. The two decisions are therefore scheduled for the same day, though the announced timing for the Bank of Canada differs from that of the US press conference.

Texas manufacturing survey data presented a mixed picture of activity in October. The general business activity index rose to 13.4 points from 9.8 in September, according to the Federal Reserve Bank of Dallas. But the index is not a measure of industrial production; the report said the pace of production growth slowed. The production index, a key measure of manufacturing conditions in the state, fell 14 points to 15.8, while remaining above its series average. The new orders index also dropped to 9.3 from 30.7 in September, a sharp decline from the previous month's reading. These indicators come as the Bank of Canada weighs energy cost pressures against weak employment data, while attention turns to the coming rate decision.

In markets, two-year Canadian government bond yields have risen by more than 22 basis points since the Bank of Canada's previous meeting in September, according to Reuters. In early Monday trading, Brent crude fell 93 cents, or 0.8%, to $115.79 a barrel, after holding near its highest level in about 6 months. The currency's decline came in a session that also saw oil fall, with the Canadian bank's decision and expectations for the Federal Reserve remaining factors in monitoring the US dollar/Canadian dollar pair. This follows earlier EL7 coverage on October 24 that linked the Canadian currency's rise to a five-week high with anticipation of the rate decision. The Federal Reserve Bank of Dallas is scheduled to release its next manufacturing survey on Monday, November 30, 2026.