Canadian Dollar Falls on the Week as U.S. Dollar Rises to 1.42567
Key Facts
The U.S. dollar–Canadian dollar pair’s closing rate rose to 1.42567 on November 12, from 1.41223 on November 6, a move consistent with the Canadian currency’s decline over the period. The reading means the U.S. dollar bought more Canadian dollars than at the November 6 close. The move comes amid news of a weekly decline in the Canadian dollar, but the available closing data do not identify a direct cause. Nor do they, on their own, establish that widening yield spreads drove the market. Yield spreads remained part of the monetary policy discussion after the Bank of Canada said Canadian bond yields had risen less than their U.S. counterparts.
In the minutes of the council’s deliberations on its October 28 decision, the Bank of Canada said bond yields had risen in most advanced economies, with the increase in Canada smaller than in the United States. The comparison provides context for yield movements in the two countries in the period before the pair rose this week. But it does not measure the size of the gap between the yields or, by itself, link the exchange-rate move to a single cause. The Bank of Canada raised its overnight rate target by 25 basis points to 2.5% on October 28. The decision came as the bank’s projections showed inflation remaining above the level it targets over the medium term.
The Bank of Canada governor said the council may need to raise interest rates again, with decisions made meeting by meeting. In opening remarks, the governor added: "Further increases in the policy rate may be needed, but amid uncertainty, we will proceed carefully." The signal puts the possibility of further tightening on the table, but sets no timing or size for another increase. In the third-quarter Market Participants Survey, the median forecast for the interest rate in December 2026 was 2.50%, compared with 2.25% in October. The survey presents participants’ forecasts as reported, while the bank’s next decision remains separate from them.
The Bank of Canada’s Monetary Policy Report projected inflation would remain near 3% through much of 2027 before returning to a level close to 2% by mid-2028. The projected path reflects continued price pressures for a period before inflation eases closer to the bank’s target. In the United States, nonfarm payrolls increased by 165,000 jobs in October, while the unemployment rate edged up to 4.1%. U.S. labor-market data provide relatively supportive context for the U.S. dollar, but do not, on their own, establish that they drove the pair’s rise over the period. Diverging indicators in the two countries are part of the context markets monitor when assessing monetary policy paths and the two currencies.
Markets are awaiting Statistics Canada’s release of the October Consumer Price Index on November 16. The release is set to provide a more recent reading on Canadian inflation, as the Bank of Canada expects inflation to remain near 3% through much of 2027. The next announced interest-rate decision is scheduled for December 9, 2026. It follows October’s increase, which brought the overnight rate target to 2.5%, and the governor’s signal that further increases may be needed. These upcoming milestones will provide new data and a decision in the sequence of meetings the bank said it would approach carefully.