Dollar Dominance Returns: USD/CAD and USD/MXN Outlook for Q4 2026

The final stretch of 2026 is approaching, and North America's major currencies have begun to show a shift in strength dynamics. The U.S. dollar has regained strength, particularly after recent shifts in expectations surrounding the Federal Reserve. This backdrop, combined with potential trade tensions across North America, may become one of the most important drivers of currency performance in the months ahead.

Both the Canadian dollar and the Mexican peso continue to struggle against a resurgent U.S. dollar, which has regained strength following new expectations of a more aggressive monetary policy stance from the Federal Reserve. If confidence in the USD remains resilient through the final part of 2026, both USD/CAD and USD/MXN could continue to reflect indecision or even develop more sustained bullish pressure.

The contrast between North America's central banks is becoming increasingly evident. Mexico maintains the highest interest rate in the region at 6.5%, while the Bank of Canada has not adjusted its policy rate since October 2025, keeping it at 2.25%. The Federal Reserve, on the other hand, has resumed raising interest rates, moving the benchmark rate from 3.75% to 4.00%.

Market expectations are building for a more aggressive path for the Federal Reserve, supported by inflation data that has yet to show sustained improvement. Meanwhile, both Banxico and the Bank of Canada appear to have greater room to maintain cautious policy approaches in the months ahead.