Canadian Dollar Forecast: Goldman Brings October Hike Into Focus After Alberta Vote
The Canadian Dollar has gained against the US Dollar as Goldman brings forward its rate call, but Sterling has a tightening story of its own.
Goldman Sachs now expects the Bank of Canada to raise interest rates on 28 October, bringing forward its call as rising inflation expectations add to the case for tightening despite weak employment.
The revision comes as the US Dollar to Canadian Dollar exchange rate extends its decline, trading at 1.4054 at 10:41 BST on Wednesday, down 0.09% on the day after a 0.28% fall on Tuesday.
Goldman forecasts a 25-basis-point increase to 2.50% next week.
MUFG also sees an October move becoming more likely, although its argument depends on policymakers prioritising future inflation risks and markets continuing to anticipate a hike.
The political backdrop has also improved following Alberta’s vote to remain part of Canada.
Preliminary results showed roughly three-quarters of voters rejecting the proposal to begin a process towards a binding separation referendum.
For currency investors, that reduces an immediate source of uncertainty surrounding the oil-producing province, giving the Canadian Dollar a more favourable backdrop alongside rising interest-rate expectations.
The result does not resolve Canada’s trade difficulties, however, and should not be confused with the inflation evidence behind Goldman’s revised BoC forecast.
Goldman Changes Its Call After the Surveys
The business and consumer surveys have shifted attention towards the risk that higher costs become embedded in pricing decisions.
Goldman economists Megan Peters and Joseph Briggs wrote: “The message from today’s surveys was more hawkish than we anticipated, with greater emphasis on improvements in activity, continued resilience, and price pressures than the potential headwinds from rising trade tensions with the US.”
The economists also pointed to Governor Tiff Macklem’s recent public remarks: “Combined with Governor Macklem’s hawkish comments at this past weekend’s IMF meetings, we now expect that the BoC will deliver a 25bp hike at next week’s October meeting.”
Consumers’ five-year inflation expectations rose to 3.9% from 3.4%, while roughly half the businesses surveyed intended to pass some or all of their higher energy and tariff costs to customers.
That combination gives the BoC reason to worry about inflation persisting even without a strong jobs recovery.
But the Bank of Canada’s survey findings carry an important timing qualification: around three-quarters of business interviews preceded the breakdown in US-Canada trade talks.
Responses collected after the breakdown showed weaker confidence and investment intentions alongside higher inflation expectations, leaving policymakers facing both growth and price risks.
The caution in the earlier ING and CIBC assessment of Canada’s outlook therefore remains relevant, even as Goldman puts greater weight on the surveys’ inflation warning.
An October Hike Would Leave December Open
Goldman has also accelerated its expected second increase, but stops short of forecasting consecutive hikes.
Peters and Briggs wrote: “We are also pulling forward our forecast for a final 25bp hike to 2.75% (the center of the BoC’s neutral rate range) to January 2027.”
“Although a final hike in December remains a possibility, we believe that a still benign inflation backdrop and more visible headwinds from US trade tensions support a more gradual pace of policy normalization.”
MUFG identifies a route to a faster repricing, rather than making the same firm forecast.
Senior currency analyst Lee Hardman cautioned: “However, it is not a done deal given the recent softer economic data flow from Canada including the second consecutive month of heavy job losses in September.”
“A decision to raise rates this month would then encourage speculation that they could follow that up quickly with a second hike before the end of this year in December providing more support for the Canadian dollar.”
Much of the initial adjustment has already happened.
Hardman recorded the shift on Tuesday: “There are currently around 21bps of hikes priced in compared to only 9bps at the end of last week.”
Higher expected Canadian rates can support the currency by improving its prospective yield, but delivering an increase that investors largely anticipate may offer less additional support than signalling another soon afterwards.
Why GBP/CAD Faces a Different Test
The Pound-to-Canadian Dollar exchange rate was up 0.05% at 1.8821 at the same time on Wednesday, illustrating Sterling’s relative resilience despite the Canadian currency’s gains against the US Dollar.
Wednesday’s UK inflation release showed annual CPI rising to 3.5% from 3.1%, adding pressure on the Bank of England after stronger labour-market figures.
Before that release, Hardman wrote: “We continue to expect the BoE to hike rates next month and deliver a second hike early next year.”
“A view that is already well priced into the UK rate market which is anticipating even more tightening and has almost three hikes priced in by March of next year.”
MUFG’s support for Sterling also depends on the forthcoming UK Budget preserving confidence in fiscal consolidation.
What This Means for USD/CAD and GBP/CAD
USD/CAD’s decline leaves the Canadian Dollar approaching next week’s decision with substantial tightening already anticipated. A hike accompanied by encouragement for a December follow-up could extend that strength, whereas an emphasis on trade damage and patience would fit Goldman’s slower January timetable.
For GBP/CAD, Canadian tightening alone may struggle to dislodge Sterling while a November BoE increase remains expected. A more urgent Canadian policy message, or UK Budget measures that undermine confidence, would give the Canadian Dollar a clearer advantage.
A BoC hold would challenge the rate expectations supporting the recent Canadian Dollar recovery and could lift both pairs. The employment weakness highlighted by MUFG keeps that risk alive ahead of 28 October.
