Loonie Weakens as Fed Hike Reinforces US Dollar Advantage

The Canadian dollar weakened after the Federal Reserve raised interest rates as expected and signaled another increase before year-end, reinforcing the U.S. dollar's advantage.

The Fed increased its benchmark rate by 25 basis points to 3.75%-4.00%, its first rate hike since July 2023. This move was accompanied by updated projections showing policymakers expect another hike before the end of 2026, keeping pressure on currencies such as the Canadian dollar.

The Canadian dollar has been pressured not only by the Fed's decision but also by the recent rise in the U.S. dollar against major currencies. Higher U.S. yields can make dollar-denominated assets more attractive relative to Canadian assets, particularly when expectations for Canadian monetary policy remain comparatively softer.