Canadian Dollar Continues Downward Spiral Amid Widening Rate Gap

The Canadian dollar has weakened against the US dollar for three consecutive weeks, reaching a new low of over one month on Friday.

This decline is largely due to the widening interest rate differential between the two countries, with the US Federal Reserve's recent rate hike and market expectations of another increase next month favoring US dollar assets.

The Bank of Canada has kept its key policy rate unchanged at 2.25% since October 2025, while Canadian inflation has eased to approximately 3.0%, allowing the central bank to maintain a wait-and-see stance.

CIBC Capital Markets forecasts that the US dollar will average C$1.42 against the Canadian dollar in the fourth quarter of 2026 and will gradually retreat to C$1.39 by Q1 2027, before further declining to C$1.35 by Q4 2027.