Dollar Dominance Returns: Fed Rate Hike Fuels USD Gains Against CAD and MXN

The US dollar is expected to regain strength against its North American counterparts, particularly the Canadian and Mexican currencies, as the Federal Reserve adopts a more aggressive monetary policy stance. The Fed has resumed raising interest rates, with the benchmark rate now at 4.00%, signaling a shift towards a more restrictive approach. This move could support the US dollar's dominance in the region.

The contrast between the Federal Reserve and its North American peers is evident in their respective interest rate paths. Mexico's Banco de México has maintained the highest policy rate in the region at 6.5%, while the Bank of Canada has kept rates unchanged at 2.25% since October 2025. The Bank of Canada's cautious approach reflects its wait-and-see strategy, as policymakers assess economic conditions before making any new adjustments.

Inflation remains a key driver of monetary policy decisions across North America. While Mexico has shown clear signs of disinflation, with inflation slowing to 3.26% in August, the US and Canada continue to struggle with more persistent price pressures. The Federal Reserve's decision to raise interest rates reflects its efforts to address the ongoing inflation challenge.