Bank of Canada likely to hike again after today’s move
The desk sees potential for the Canadian dollar (CAD) to strengthen following the Bank of Canada's (BoC) recent rate increase. The BoC raised its policy rate by 25 basis points to 2.5%, indicating that this move is not likely to be an isolated hike, as policymakers express concerns over persistent inflationary pressures (per the full note ). Current market pricing shows a 50% chance of another hike in December, although the desk expects that any further tightening will materialize no earlier than the first quarter of 2027. This cautious but growth-oriented approach by the BoC aligns with favorable consumer spending data, propelling the outlook amid rising energy prices.
What the desk is arguing
The desk anticipates that the Bank of Canada's recent hike may lead to future rate adjustments, supporting a bullish outlook for the Canadian dollar. Recent data, characterized by stronger-than-expected growth figures driven by consumer spending and an uptick in business investment, bolster this thesis (per the full note ). Policymakers have signaled that they will proceed with caution, balancing the need to combat inflation with economic strength.
The BoC's statement highlights rising costs that could pressure consumer prices, suggesting that inflation might be more persistent than expected. As noted, the Canadian unemployment rate has risen to 6.5%, presenting mixed signals about the overall labor market (per the full note ). Therefore, while the BoC’s rate hike is a step towards normalization, the potential for additional increases remains closely linked to future economic performance.
Where it sits in our coverage
The market consensus for USD/CAD places the median target at 1.36 by December 2026, within a range of 1.3500 to 1.4036. Notably, several firms provide insights: - Rabobank: Dec-26 target 1.3600 - TD: Dec-26 target 1.4000 - RBC: Dec-26 target 1.3400
Our desk’s outlook aligns with the lower end of this consensus spread, reflecting a more cautious view on CAD upside despite the recent rate hike.
How other firms see it
Most firms, including Scotiabank and CIBC, maintain a similar bullish stance on the CAD, pricing in strong growth but cautioning against overly optimistic inflation projections. Conversely, Nomura and HSBC appear more reserved, indicating a potential weakness in the CAD given the recent rise in unemployment figures.
The trajectory for USD/CAD will also be closely linked to broader market sentiment towards the BoC's tightening path and the performance of the U.S. dollar, particularly as global economic factors continue to evolve.
How firms align with this view
Key takeaways
- 01The Bank of Canada raised its policy rate by 25bp to 2.5%, with indications of further hikes to combat inflation.
- 02Policymakers are cautious due to mixed economic signals, including rising unemployment at 6.5%.
- 03Current consensus for USD/CAD places the December 2026 target at 1.36, reflecting a tight range and varied firm outlooks.
- 04The desk's call anticipates CAD upside but keeps an eye on economic performance and inflation.
Market implications
Traders should focus on the 1.36 target level for USD/CAD, watching for signs of further BoC rate hikes in upcoming meetings. Any unexpected data releases leading to a change in inflation expectations could shift market sentiment rapidly.
Risks to this view
A reversal in the CAD's outlook may occur if inflation unexpectedly falls or if employment data continues to deteriorate, potentially prompting the BoC to halt further rate hikes.
USD/CAD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Morgan Stanley | Bullish | 1.34 |
StoneX | Bullish | 1.40 |
Standard Chartered | Bullish | 1.34 |
Articles Bank of Canada likely to hike again after today’s move Published 15:05 FX Canada Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The BoC raised the policy rate by 25bp to 2.5% today, matching market expectations. Policymakers acknowledge rising inflationary risks, and while not recommitting to a rate path, the indications are that this won’t be a one-and-done hike. We expect the next move in 1Q27, with risks of an earlier one in December.
We remain cautious on CAD's upside risks James Knightley and Francesco Pesole The BoC raised rates to 2.5% today BoC to proceed carefully after hike The Bank of Canada has raised its target for the overnight rate by 25bp to 2.5%. Ahead of the meeting, it was about 80% priced by markets, with economists split down the middle on whether we would get a hike or not – the Canadian outlook is improving, but inflation is in line with target and the recent jobs numbers have been disappointing with the unemployment rate rising to 6.5%. The statement justifies the action on the basis that the recent growth figures have been stronger than anticipated thanks in part to "solid" consumer spending, while business capex in the oil and gas industry has rebounded on higher energy prices.
They also note that sectors that had been heavily impacted by US tariffs have strengthened. In an environment of rising cost pressures, which so far have been largely absorbed by businesses, there is a sense that cost pass-through could be more of a theme for 2027. As such, inflation could be more persistent than previously thought likely.
Given this situation, the BoC concluded that "there could be the need to increase the policy rate further..." but they will "proceed carefully". Market expectations still too hawkish Markets are currently seeing the next meeting in December as a 50:50 call on whether we get another hike. Right now our forecast is for the BoC to hike rates to 2.75% in the first quarter of 2027 (our preference is January over March) and hold them steady, but the risk is that they go a little more aggressively, and we see a December hike followed by a 1Q27 move.
Anyway, we still judge market expectations for 90bp of tightening over the next 12 months as overly hawkish. The BoC has a central estimate for the neutral rate around 2.75%, and we agree with their estimate that second-round effects will be present but overall contained, especially in terms of wage growth spillover. Source: ING, Refinitiv "> Source: ING, Refinitiv CAD outlook is very oil-dependent In the near term, elevated oil prices risk prompting an upward surprise in inflation and leading markets to price in a December hike.
The BoC can accommodate this. This adds to the weight that oil prices have on CAD’s near-term outlook. We remain on the more bearish side of the oil story, and think a decline in energy prices could lead to broad dovish repricing and release pressure on the BoC to hike in December.
Sources & References
How we cover this story
Cross-firm research
USD/CAD Consensus Check: Spot at 1.4064, Median Target 1.36 — Week of October 28, 2026
USD/CAD trades 3.41% above the 25-firm median Dec-26 target of 1.36, with a 0.11 dispersion range signalling meaningful disagreement on the policy-gap and oil outlook.
USD/CAD Consensus Check: Spot at 1.4050, Median Target 1.36 — Week of October 27, 2026
USD/CAD trades 3.31% above the 25-firm median Dec-26 target of 1.36, with a 0.11 dispersion range signalling meaningful disagreement on the BoC-Fed gap.
USD/CAD at 1.4038: Consensus Targets 1.36 by Dec-2026
Spot USD/CAD sits 3.22% above the 25-firm Dec-2026 consensus of 1.36, with a 0.11 range separating Deutsche Bank's 1.32 from Citi's 1.43.