USD/CAD Price Forecast: Weak GDP Challenges Further BoC Hike Bets
The Canadian Dollar is holding up despite disappointing growth, leaving JP Morgan cautious about further gains supported by Bank of Canada rate rises.
The Canadian Dollar edged higher on Monday, with the US Dollar to Canadian-Dollar exchange rate trading at 1.3955, down 0.12% on the day.
Dollar to Canadian Dollar (USD/CAD): 1.39619 (-0.16%)
Euro to Canadian Dollar (EUR/CAD): 1.562563 (-0.16%)
Its resilience has become a complication for JPMorgan’s currency desk, which sees weaker growth as a reason to question how much more the Bank of Canada can raise interest rates.
The bank’s separate research forecasts put USD/CAD at 1.41 in December 2026, implying some reversal of the Canadian Dollar’s strength before a modest recovery next year.
That is a formal forecast, while the desk’s latest commentary is a less confident assessment of the immediate risks after Friday’s GDP report.
A softer economy after the rate rise
JPMorgan’s FX desk writes: “Canadian GDP came in weaker than expected on Friday, with 3Q growth now tracking around 1.5% q/q SAAR, below expectations and the BoC’s 2% forecast.”
Both numbers describe annualised quarterly growth, and JPMorgan’s figure is an estimate of the third-quarter outcome rather than a final GDP release.
Statistics Canada reported a second consecutive month of unchanged output in August, with its advance estimate pointing to a small decline in September.
The weakness arrived just after the Bank of Canada raised its policy rate to 2.50% on 28 October.
Inflation risks, rather than uniformly strong demand, drove that decision.
JPMorgan’s research team explains: “The BoC delivered the expected 25bp hike to reduce the risk that energy pressures spill into broader inflation, but also highlighted remaining slack and said it would “proceed carefully” with any further hikes.”
Slack means that parts of the economy still have spare capacity, making it harder for businesses to pass on rising costs without losing sales.
The desk’s conclusion is cautious: “The softer print reinforces my view from Friday that the BoC should proceed cautiously with any further tightening and makes it even harder, in my view, to justify the amount of tightening currently priced into the curve.”
The rate advantage may disappoint
A currency can lose support even while its central bank raises rates if investors had expected substantially more tightening.
JPMorgan’s Friday research identified that risk: “OIS pricing still implies ~3 additional hikes over the next year, whereas our JPM economists expect only one more hike in January.”
Those overnight-index-swap prices describe expectations at the end of last week.
On carry, the interest income from holding a currency, JPMorgan adds: “The curve therefore remains more hawkish than our baseline, and the 2.50% current policy rate means carry favors other G10 cyclical currencies.”
“This week’s risk management hike by the BoC was not a game changer for our bearish CAD view, and we continue to see downside from the rates profile.”
The weak GDP figures add a growth constraint to the earlier debate over how far Canada’s tightening cycle can run.
But the desk acknowledges that the Canadian Dollar’s performance has reduced its conviction in further weakness.
Its account of Friday’s activity also shows demand persisting among some investors: “Flows were mixed on Friday, with Corporates emerging as sellers of CAD while Systematic accounts remained buyers.”
Friday’s research also warned against expecting an outsized currency response to this week’s jobs figures: “For Canadian employment (Nov 6), risks are two-sided with the next BoC meeting priced roughly 50/50; any moves should be modest as BoC is more focused on inflation.”
JPMorgan’s formal research path also allows for Canadian Dollar gains later: USD/CAD is projected at 1.39 by September 2027, close to Monday’s level.
What This Means for USD/CAD
A return towards JPMorgan’s 1.41 end-2026 forecast would require the Canadian Dollar to give back some strength. Reduced expectations for further BoC tightening could contribute, particularly if weak activity persists while inflation pressures ease.
Friday’s employment report will provide another test of that growth concern. A stronger labour market would make it harder to dismiss the case for more tightening, although the central bank is also watching whether energy costs spread into broader prices.
The next scheduled BoC decision is on 9 December. Until then, the Canadian Dollar’s ability to hold its gains despite softer output is a warning against assuming that the GDP disappointment alone will carry USD/CAD higher.
