Introduction to USD/CAD Exchange Rate
The US Dollar to Canadian Dollar (USD/CAD) exchange rate has been a topic of interest lately, especially after the latest Bank of Canada (BoC) policy decision. As of recent developments, the USD/CAD exchange rate is trading just above 1.3750.
Bank of Canada’s Policy Decision
The Bank of Canada made a significant decision at its September 17th policy meeting, cutting interest rates by a further 25 basis-point to 2.50%. This move was in line with consensus forecasts. The bank also noted that there are risks to both costs and activity from ongoing tariffs and acknowledged the high degree of uncertainty in the current economic climate.
Scotiabank’s Projections
Scotiabank expects the Bank of Canada to make one further rate cut, which will likely happen in October. This cut is seen as an insurance against a further weakening in activity, particularly given the weak employment reports for the last two months. However, the bank also anticipates that inflation pressures will prove stubborn and expects the central bank to start increasing interest rates again in the second half of 2026.
Impact on USD/CAD Exchange Rate
Scotiabank projects that the USD/CAD exchange rate will experience losses, reaching 1.34 by the end of 2025 and 1.28 by the end of next year. This forecast is based on the expectation of a series of Federal Reserve cuts, which will narrow yield spreads and trigger fresh Canadian dollar gains.
Federal Reserve’s Role
In contrast to the Bank of Canada, Scotiabank expects the Federal Reserve to continue cutting rates throughout next year. This move is expected to help underpin the Canadian dollar. Additionally, the possibility of more political control of the Fed could trigger sharper US losses, further impacting the USD/CAD exchange rate.
Conclusion
The USD/CAD exchange rate is expected to fluctuate based on the actions of the Bank of Canada and the Federal Reserve. With Scotiabank’s projections indicating a decline in the exchange rate, it will be interesting to see how the situation develops. The combination of interest rate cuts and potential political influence on the Fed may lead to significant changes in the USD/CAD exchange rate, making it essential to keep a close eye on future developments.
