Diverging Central Banks to Fuel Dollar's Rebound in North America

The outlook for North America's major currencies is shifting as expectations of a more aggressive monetary policy stance in the United States resurface. The U.S. dollar has regained strength, particularly after the recent shift in Federal Reserve expectations.

The Canadian dollar and Mexican peso continue to struggle against the USD, with both USD/CAD and USD/MXN reflecting indecision or even developing bullish pressure. This can be attributed to the divergent monetary policy approaches among North America's central banks.

The Bank of Canada has maintained a wait-and-see strategy, leaving interest rates unchanged at 2.25%, while Banco de México still maintains the highest interest rate in the region at 6.5%. The Federal Reserve has resumed raising interest rates, moving the benchmark rate from 3.75% to 4.00%, signaling a more aggressive stance for the months ahead.

Inflation remains a key driver of monetary policy decisions across the region. Mexico has shown the clearest signs of disinflation, with inflation slowing to 3.26% in August. In contrast, Canada and especially the United States are still dealing with persistent price pressures, with U.S. inflation near 3.4% after reaching a peak of 4.2% in May.