Canadian Dollar Soars to 3-Month High: What's Driving the Trend?

Canadian Dollar Gains Momentum

The Canadian dollar, also known as the loonie, has reached its strongest level since September 17, gaining 0.4% for the week. This marks its third consecutive weekly gain, with the currency trading at 1.3765 per US dollar.

Economic Indicators Point to Growth

Wholesale trade in Canada grew by 0.1% in October, beating analyst expectations of a 0.1% decline. This growth was driven by higher sales in the motor vehicle and motor vehicle parts and accessories sector. Additionally, building permits climbed 14.9% in October, and capacity utilization increased to 78.5% in the third quarter.

Monetary Policy Divergence

Investors are betting on a divergence in monetary policy between the Bank of Canada and the Federal Reserve. With the Bank of Canada keeping its benchmark interest rate at 2.25%, investors expect the Federal Reserve to continue easing. Adam Button, chief currency analyst at investingLive, notes that the market is looking at a potential rate hike in Canada in the second half of 2026.

Key factors driving the Canadian dollar's growth include oil prices, monetary policy, and economic data. While the price of oil, a major Canadian export, settled 0.3% lower at $57.38 a barrel, the overall trend remains positive.

Market Trends

• Canadian bond yields were mixed, with the 10-year yield up 1.6 basis points at 3.453%.
• The Federal Reserve is expected to cut interest rates further, while the Bank of Canada is predicted to keep rates steady or even hike them in the future.
• Investors are watching for signs of economic growth, inflation, and interest rate changes to inform their investment decisions.

As the Canadian economy continues to show resilience, investors are taking notice of the loonie's potential for growth. With its strong performance and positive economic indicators, the Canadian dollar is an attractive option for investors looking to diversify their portfolios.