Canadian Dollar Hits 12-week High

The Canadian dollar held above 1.38 per US dollar, easing from two-month highs of 1.38 reached on December 5 as investors digested the Bank of Canada decision and guidance.

The Bank of Canada’s December hold at 2.25% reiterated that policy is about right because growth and labour market surprises have narrowed slack.

Third-quarter GDP surprised to the upside with annualized growth of 2.6% and the labour market added significant jobs as the unemployment rate fell to about 6.5%.

Those developments reduce the near-term odds of easing and tilt the balance toward later tightening if underlying inflation proves persistent.

On the other hand, oil, Canada’s largest export price, has eased from its early-December spike, removing a key terms-of-trade tailwind for the loonie.

The Bank also flagged that recent GDP strength largely reflected volatile trade and that fourth-quarter growth may be weaker, undercutting confidence in a durable domestic upswing.

The Canadian dollar strengthened past 1.39 per US dollar, reaching two month highs, as a surprisingly firm labour report tightened the domestic policy outlook while the US dollar softened.

Unemployment unexpectedly fell to 6.5% in November, the lowest in 16 months, with the number of unemployed down about 80,000 to roughly 1.5 million.The result marked a clear reversal of the spring rise in joblessness and a sign that domestic slack is receding.

That payroll strength makes it much likelier the Bank of Canada will pause after its October cut because officials have stressed they will be data driven and will stop easing if activity and inflation prove firmer than expected.

At the same time markets have moved to price a near certain Federal Reserve cut in December and further easing next year, which has weighed on the dollar.

The Canadian dollar appreciated toward 1.39 per US dollar to one month highs as a weaker US currency amplified earlier strength from evidence of a resilient Canadian economy.

ADP’s surprise drop in private payrolls helped push market odds toward a near certain Fed cut.

Meanwhile, unexpectedly strong third quarter GDP at an annualized 2.6% lifted the probability that the Bank of Canada will pause or slow its easing path.

A modest commodity tailwind from firmer crude and rising copper improved Canada’s terms of trade and reinforced the move while softer manufacturing PMIs offer a counterpoint but do not offset the broader support from weaker US policy expectations and firmer domestic activity.

The Canadian Dollar touched 1.40 against the USD, the highest since October 2025.

Over the past 4 weeks, US Dollar Canadian Dollar gained 0.2%, and in the last 12 months, it decreased 0.24%.

The Canadian dollar strengthened past 1.40 per US dollar to one-month highs as a stronger-than-expected Q3 GDP print coincided with a softer US dollar on growing odds of Fed easing.

Q3 GDP rose 0.6% quarter on quarter, annualized at 2.6%, reversing the prior quarter’s contraction driven by a smaller import bill down 2.2% and a slight rise in exports up 0.2%, a trade-led improvement that brightens the current account outlook.

Higher government capital spending up 2.9%, including an 82% jump in weapon-systems outlays, supported domestic demand even as household consumption edged down 0.1%.

The Bank of Canada’s pause with the policy rate at 2.25% preserves an interest-rate cushion that sustains carry-oriented inflows into CAD, while markets now price roughly an 80% chance of a 25 bp Fed cut in December which weakens the dollar and removes a major headwind for the loonie.

The Canadian dollar firmed below 1.41 per US dollar as growing expectations for looser US policy amid softer US macro data pushed the probability of a December 25bp Fed cut into the 80% range on CME FedWatch, weakening the US dollar and removing a major headwind for the loonie.

The Bank of Canada’s pause with the overnight rate at 2.25% and market bets that the BoC will remain cautious into December have preserved an interest rate cushion that supports carry oriented inflows into CAD. Oil has softened into the high $50s a barrel after intensive diplomacy around Ukraine raised the prospect of increased Russian flows which has capped the loonie’s advance, but so far the dollar move has dominated.

Traders now await Q3 GDP and the current account prints for clearer clues on the BoC’s policy path.