Loonie Gains After BoC Hike as Markets Focus on US PCE

Key Moments

USD/CAD Slips as BoC Tightening Supports the Loonie

The USD/CAD pair weakens toward 1.3975 during early Asian trade on Thursday, with the Canadian Dollar (CAD) gaining ground against the US Dollar (USD) after a policy tightening move by the Bank of Canada (BoC). Market participants are now looking ahead to the preliminary estimate of US third-quarter Gross Domestic Product (GDP) and the September Personal Consumption Expenditures (PCE) inflation figures, both scheduled for release on Thursday.

At its October meeting on Wednesday, the BoC raised its benchmark overnight interest rate by 25 basis points to 2.50%, marking its first rate hike in more than three years. Governor Tiff Macklem indicated that additional increases could be required, while emphasizing that policymakers would proceed carefully due to uncertainty around the economic outlook.

In its statement, the BoC noted, “Given the ongoing resilience of the global economy, the Bank has revised up global GDP growth slightly to 3.1% in 2026, while growth in 2027 and 2028 remains unchanged from the July projection at 3.2%.”

Oil Market Tensions Provide Additional Tailwind to CAD

Crude oil prices move higher on Thursday amid renewed concerns about supply disruptions in the Middle East. According to Reuters, Yemen’s Iran-aligned Houthis struck Aden airport on Wednesday after previously urging people to evacuate the facility. A day earlier, the same group said it had fired a ballistic missile at the Ras Tanura oil refinery in eastern Saudi Arabia, described as the kingdom’s largest refinery.

Canada’s status as a major oil exporter means that elevated crude prices generally support the Canadian Dollar, reinforcing the positive impact from the BoC’s policy tightening.

Fed Holds Rates Steady as Inflation Stays Elevated

In line with expectations, the Federal Reserve left its federal funds rate target unchanged in a range of 3.75% to 4.00% on Wednesday. The Fed acknowledged that inflation “remains elevated” and upgraded its assessment of the US economy, suggesting that further rate hikes are possible depending on the path of inflation.

BoC Outlook: Inflation Dynamics and CAD Implications

Analysts at BBH underscore that underlying inflation is broadly aligned with the BoC’s projections, pointing out that “the average of CPI trim and median was 1.85% y/y in September, tracking just below the BoC’s 2.0% Q3 projection.” They also observe that “the pick-up in firm’s one- and two-year inflation expectations could lift the core CPI outlook, reinforcing the case for further hikes.”

BBH anticipates the BoC will adjust its forecasts higher, stating that “the BoC will likely raise its inflation and real GDP forecast, which can underpin CAD,” as “September headline CPI printed at 3.1% y/y, exceeding the bank’s 2.5% Q3 projection, while Q2 real GDP grew 3.3% annualized vs. the bank’s 2.5% projection.”

Hawkish US Policy Tone Keeps Dollar-Supportive Narrative Intact

Warsh’s post-meeting press conference is characterized as firmly hawkish, with a 7/10 FXS Speechtracker score matching the previously established baseline and signaling continuity rather than a shift in stance. By emphasizing that “ensuring price stability is not about a fixed date on a calendar” and referring to “new monetary medicine” and the September removal of accommodation, the communication stresses a data-dependent approach that remains firmly focused on controlling inflation, even as inflation expectations are described as “going the right way.”

Repeated commitments of “no ifs and or buts, we will deliver price stability” and a strict 2% PCE inflation target, together with recognition that higher interest rates are affecting technology and CAPEX, reinforce expectations of ongoing restrictive policy. This backdrop tends to support the US Dollar and keeps risk assets sensitive to additional tightening signals.

The FXS Fed Sentiment Index rises by +14.39 points to 141.89, moving further into hawkish territory and aligning with the 7/10 tone measured by the FXS Speechtracker. With the index well above its neutral 100 level, markets are likely to see Warsh’s focus on effective “monetary medicine” and a steadfast 2% PCE goal as confirmation of a higher-for-longer rate profile, typically favorable for the Dollar and challenging for high-beta currencies and rate-sensitive assets.

USD/CAD Technical Picture: Bearish Bias Below the 100-day SMA

On the daily chart, USD/CAD maintains a bearish short-term structure as the pair trades below both the 100-day simple moving average (SMA) and the middle line of the Bollinger Bands. Price is pulling back from the upper half of the recent Bollinger envelope, while the 14-period Relative Strength Index (RSI) near 38.5 reflects subdued momentum rather than deeply oversold conditions. This configuration suggests that sellers still dominate, although downward momentum appears to be losing intensity.

On the upside, initial resistance is located at the 100-day SMA around 1.4045, followed by the Bollinger middle band near 1.4140 and then the upper band toward 1.4350, where a sustained move higher would be required to ease the prevailing bearish tone. On the downside, the lower Bollinger band around 1.3930 is the first notable support, and a decisive drop below this threshold would likely open the way for a continued corrective decline in the upcoming sessions.