CAD Falls as Investors Expect Widening Interest-Rate Gap

The Canadian Dollar (CAD) is experiencing downward pressure as investors expect the interest-rate differential between the US and Canada to widen further.

This expectation comes after the Bank of Canada (BoC) kept its key policy rate unchanged at 2.25% in September, while the Federal Reserve (Fed) raised its federal funds target range, solidifying the US Dollar's (USD) advantage over the CAD.

Strategists at Scotiabank observe that wider US-Canada spreads have been a major headwind for the CAD, leaving it under pressure against the USD and lagging most of its G10 peers. However, they add that 'the move feels somewhat stretched,' arguing that there is 'limited scope for further tightening in Fed expectations while the BoC feels somewhat underpriced.'