The Canadian dollar has clawed its way back from the brink. After plunging to 14-month lows near 70 US cents earlier in July, the loonie has staged a meaningful recovery, with USD/CAD sinking to levels not seen since early June as of September 8, 2026.
A Fed hold, a jobs miss, and a currency reversal
The pivot point came on July 29, when the Federal Reserve voted 9-3 to keep its benchmark rate unchanged at 3.50% to 3.75%. Three dissenters favored a hike, which tells you the internal debate is real. But the majority held firm, and markets responded by trimming the odds of a September rate increase.
That decision alone nudged USD/CAD down toward 1.40, with the loonie touching a 9-day high around 1.4024, roughly 71.31 US cents.
Then came the jobs report that really moved the needle. US nonfarm payrolls for July showed a decline of 23,000 jobs. Economists had expected a gain of 80,000. That 103,000-job gap between expectation and reality did more for the Canadian dollar than any central bank statement could. USD/CAD dropped to its lowest reading since early June, as traders recalibrated their assumptions about when, or whether, the Fed would actually tighten further.
Canada’s economic resilience fills the gap
While the US labor market stumbled, Canadian employment data came in strong. The widening interest rate gap between the US and Canada, with the Fed at 3.50%-3.75% and the Bank of Canada holding at around 2.25%, created a gravitational pull toward the greenback. That differential, more than 125 basis points, made USD-denominated assets far more attractive on a yield basis.
Analysts at Scotiabank and CIBC pointed to this interest-rate chasm as the primary force driving CAD weakness earlier in the year, more so than trade frictions or commodity price swings. When markets began repricing the probability of additional Fed hikes, the loonie bore the brunt, sliding to that painful 14-month low near 70 US cents, which translates to roughly 1.43 CAD per USD.
Persistent inflation and geopolitical crosscurrents
Persistent inflation in the US had been the primary argument for continued Fed hawkishness. Prices remain stubbornly elevated in several categories, which is precisely why three Fed governors dissented and wanted a hike.
Geopolitical tensions, particularly in the Middle East, have added another dimension. Energy price volatility tends to benefit the Canadian dollar given the country’s status as a major oil exporter.
The Bank of Canada’s decision to maintain its rate at approximately 2.25% reflects a different calculation from the Fed’s, and has played a critical role in shaping the CAD’s trajectory, allowing it to capitalize on energy price supports even as the USD faced headwinds from broader economic uncertainties.
