The Canadian dollar stretched its winning run to six straight sessions on Thursday. USD/CAD fell to about 1.40 — the loonie's strongest since September 22, and nearly 2% below the October high of 1.4297. Two forces are doing the pushing: crude oil prices that refuse to cool, and growing conviction the Bank of Canada hikes rates next week.
Brent changed hands near $110.60 in early Asian trade, up about 1.7% and near Monday's five-month high around $112, while WTI held near $98-99.50. The spark was fresh violence. A Houthi drone attack on Saudi Aramco's Shaybah oilfield killed two people on Wednesday, and ship tracker Kpler counted at least 18 vessels attacked in two weeks. With Iranian targeting spreading beyond the Strait of Hormuz into the Gulf of Oman, Washington ordered non-emergency staff out of Saudi Arabia. For Canada, a top crude exporter sending most of its barrels to the US, dearer oil is a direct tailwind. Now rate-hike expectations are pushing the same way.
Why it matters
Six down days in a row is the market repricing Canadian monetary policy in real time. Traders now assign roughly 80 to 85% odds to a quarter-point Bank of Canada hike to 2.50% at the October 28 decision. That is up from barely 30% a week earlier, according to interest-rate swaps data reported by Reuters. The current rate has sat at 2.25% since the September 2 hold. Governor Tiff Macklem said over the weekend the bank expects to raise its quarterly inflation forecast significantly this month on persistently high crude and petroleum prices.
The inflation data explains the urgency. September headline inflation printed 3.1% year on year, up from 3.0% in August, with gasoline up 27.8% over twelve months. Strip out gasoline and the picture flips. Inflation cooled to 2.2% from 2.4%, and the bank's preferred core gauges — CPI-trim 1.8%, CPI-median 1.9% — sit inside target. That split is why October 28 is a close call: energy is doing all the damage, and higher rates cannot pump more oil.
Not everyone is convinced. RBC's Abbey Xu expects a hold at 2.25% through 2026. Her argument: fuel costs have not spread to broader prices. Standard Chartered's Dan Pan goes further, calling market pricing of the full tightening cycle "excessive" and forecasting a hold through end-2026 and 2027. For the dollar side of this pair, see our Dollar index forecast: DXY clings to 101.60 support as Fed decision nears. The oil backdrop is in Brent crude holds near five-month high after Houthi strikes on Saudi infrastructure.
What to watch
- Bank of Canada decision, Wednesday October 28 at 9:45 a.m. ET, alongside the Monetary Policy Report — a hike to 2.50% is the market's base case, so a hold would jolt the loonie lower.
- Strait of Hormuz shipping: any fresh tanker strike reprices crude the same session, and crude reprices the loonie.
- The Fed's own October 27-28 meeting — the dollar leg of USD/CAD moves with US rate expectations.
- Canadian August retail sales, due Friday — analysts expect a 1.3% rebound after July's 0.7% decline, per Reuters.
| USD/CAD level | Price | Signal |
|---|---|---|
| October high | 1.4297 | swing top |
| Tuesday intraday | 1.4030 | strongest since Sept 22 (Reuters) |
| Current | ~1.4020-1.4050 | sitting on the 100-day average |
| Next downside magnet | 1.3887 | 50% retracement of the October range |
MarketRadar take
The loonie has two engines running at once. One is a crude market priced for supply fear. The other is a central bank being pushed toward a hike by that same oil. That argues for continued downside pressure on USD/CAD into October 28. The 50% retracement zone near 1.3887 is the next magnet if 1.40 gives way.
The counter-risk is positioning. If the Bank of Canada holds at 2.25% — the RBC and Standard Chartered call — a six-day slide has plenty of room to snap back fast.
