Canadian Dollar Near-Term Forecast

The Canadian Dollar’s Recovery Depends on More Than the Next BoC Decision

Canada’s jobs slump weakens the case for an early rate rise, while ING says the Canadian Dollar needs calmer bond markets to recover against the US Dollar.

Canada’s loss of 68,000 jobs in September has challenged expectations of an early interest-rate increase, leaving the Canadian Dollar with less domestic support against a US currency that ING expects to remain firm.

Friday’s labour-force report put unemployment at 6.5%, while USD/CAD ended the session near 1.4256, up 0.22% on the day.

Latest-Exchange Rates:

Dollar to Canadian Dollar (USD/CAD): 1.42559 (+0.22%)

Pound to Canadian Dollar (GBP/CAD): 1.886489 (+0.25%)

Euro to Canadian Dollar (EUR/CAD): 1.596858 (+0.12%)

ING had already considered an October Bank of Canada hike premature before the figures arrived.

ING doubts USD/CAD can hold below 1.420 without calmer global bond markets, even if Canadian interest rates rise.

USD/CAD FX performance over the last trading week
Image: USD/CAD FX performance over the last trading week

A missing rebound changes the policy argument

ING’s FX strategist Francesco Pesole wrote beforehand: “Today, the Canadian jobs report for September is expected to show a partial rebound. Consensus sees payrolls at +10k after August’s 42k contraction, and unemployment ticking higher to 6.5%.”

Unemployment matched that forecast, but employment fell for a second month, with losses in both full-time and part-time work.

Statistics Canada reported: “In September, the number of public sector employees declined by 70,000 (-1.5%).”

Private-sector employee numbers were little changed.

Nevertheless, the report failed to provide the evidence of resilience that would have made higher borrowing costs easier to justify.

Markets had not ruled out an October hike, and Crédit Agricole’s FX strategist Alexandre Dolci saw the jobs release as a test of Canada’s ability to withstand US trade tensions.

He wrote before the data: “There have nonetheless not been any great changes at the very front end of Canadian money markets, which still discount around one-in-three chances that the BoC kick-starts its tightening cycle this month. Ahead of the next CPI data in ten days, today’s Canadian jobs report for September could already provide a material lift if August’s soft patch is followed by some signs of improvement suggesting that the Canadian economy has coped fairly well with renewed trade tensions with the US.”

ING favoured a later start even under the more reassuring jobs outcome it anticipated.

Pesole wrote before the data: “The figures shouldn’t scream ‘October hike’, but can definitely consolidate expectations for a move by the Bank of Canada in December, which is fully priced in.”

We see the subsequent disappointment as a stronger argument for patience, although it does not resolve the Bank of Canada’s inflation concerns.

At its September decision to hold rates at 2.25%, the central bank warned: “However, the upside risks to inflation have increased, while new tariffs make growth prospects more uncertain.”

Its 28 October decision and updated forecasts must weigh those price risks against fresh evidence of labour-market weakness.

USD to CAD exchange rate 3-month candlestick chart
Image: USD to CAD exchange rate 3-month candlestick chart

The Loonie also needs relief from US Dollar strength

The employment setback adds to a currency problem that ING regarded as largely external.

Before the jobs figures, Pesole wrote: “CAD has lost around 3% in the past month against USD, but is still in the upper half of the G10 scorecard.”

Those relative rankings suggest Canada’s difficulties do not fully explain the exchange-rate decline.

Investors have been favouring the US currency more broadly, with Pesole observing: “US-Canada tensions have been put on the back burner by FX investors, and the USD remains totally dominant in USD/CAD.”

Our earlier reporting on why a Canadian Dollar bounce could struggle to last similarly distinguished temporary buying from a recovery supported by stronger fundamentals.

Pesole wrote on Friday: “The dollar lost a bit of ground yesterday as Treasuries took a breather, but we don’t see signs of a broader USD correction brewing.”

Expectations of tighter US policy also meant Canada was competing for investment against a Dollar offering its own interest-rate support.

“With global bonds and risk sentiment still looking fragile, and a hawkish Fed narrative keeping markets convinced of a December hike, we retain a preference for a slightly stronger dollar in the near term.”

For Pesole, a sustained move below 1.420 depends on calmer bond markets: “The prospect of a Bank of Canada hike can lend some help only on the margin.”

USD/CAD Exchange Rate FAQ

How does the jobs slump affect the Canadian Dollar outlook?

It weakens the case for an early rate rise, reducing a potential source of support for the Canadian Dollar.

Is 1.420 ING’s USD/CAD forecast target?

It is a conditional level: ING doubts the pair can remain below it without improving global bond conditions.

When is the next Bank of Canada decision?

The next rate decision and Monetary Policy Report are due on 28 October 2026.



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