• The Canadian Dollar remains supported as markets digest contrasting signals from the BoC and the Fed.
• The BoC leans toward a prolonged pause, while the Fed delivers another interest rate cut.
• Market focus shifts to incoming data for clues on the next policy move.

The Canadian Dollar (CAD) remains bid against the US Dollar (USD) on Friday, as markets continue to digest this week’s monetary policy decisions from the Bank of Canada (BoC) and the Federal Reserve (Fed).

At the time of writing, USD/CAD is hovering near 1.3760, its lowest level since September 17, with the pair set to post a third straight weekly loss amid broad US Dollar weakness.

The BoC left its policy rate unchanged at 2.25%, in line with expectations, noting that the current setting is “about the right level” given inflation near target and signs of resilience in economic activity.

The steady policy signal reinforced expectations that interest rates are likely to remain unchanged well into 2026, though some analysts are beginning to flag the risk of eventual tightening.

Analysts at the National Bank of Canada (NBC) said they expect rates to be held steady through at least the first half of next year, but have brought forward their forecast for the start of rate hikes to the fourth quarter of 2026, from early 2027 previously.

They noted that a further decline in the unemployment rate alongside persistently firm inflation could prompt earlier tightening, while any deterioration in labour-market conditions or renewed trade uncertainty tied to the 2026 USMCA review could delay hikes into 2027.

Traders now turn their attention to Canada’s Consumer Price Index (CPI) data due on Monday, which could shape expectations for the monetary policy path into 2026.

In contrast, the Federal Reserve lowered interest rates by 25 basis points this week, bringing the target range for the Federal Funds Rate to 3.50%-3.75%. Policymakers acknowledged that risks to both sides of the Fed’s dual mandate remain in play and reiterated that upcoming decisions will be guided by incoming data.

While the guidance avoided committing to a clear easing path, markets viewed the outcome as less hawkish than many had anticipated.

Chicago Fed President Austan Goolsbee, who dissented against this week’s rate cut, said on Friday that he favoured waiting for more clarity, particularly on inflation, before easing further.

Goolsbee noted that while he remains optimistic that interest rates can come down meaningfully over the next year, he is wary of front-loading cuts given the inflation experience of recent years. He added that most incoming data points to stable economic growth, with the labour market showing only moderate signs of cooling.