Federal Reserve's Aggressive Stance to Boost US Dollar in North America

The North American currency landscape is shifting as the Federal Reserve signals a more aggressive monetary policy stance. This shift could lead to sustained strength for the U.S. dollar against its regional counterparts, including the Canadian dollar (CAD) and Mexican peso (MXN).

The Bank of Canada has left interest rates unchanged at 2.25% since October 2025, while Banco de México maintains the highest interest rate in North America at 6.5%. In contrast, the Federal Reserve has resumed raising interest rates, moving the benchmark from 3.75% to 4.00%, and signaling a more aggressive stance for the months ahead.

Inflation remains a key driver of monetary policy decisions across the region. Mexico's inflation slowed to 3.26% in August, while Canada's eased to 3.0% in September, both below their respective targets. However, the United States' inflation remains near 3.4%, still above the Federal Reserve's 2.00% objective.

The ongoing trade dispute between the United States and Canada is also affecting sentiment towards the Canadian dollar. The U.S. imposed tariffs of up to 50% on selected Canadian products, while Canada responded with retaliatory measures. This has weakened demand for CAD, which has struggled to regain highs seen near 72 points.

As a result, both USD/CAD and USD/MXN could develop periods of greater indecision or more sustained buying pressure over the coming months if expectations for higher interest rates continue to build.