Canadian Dollar Set for A Pause After October's Strong Rally, Modest Gains in 2027, MUFG Says

11:57 AM EST, 11/02/2026 (MT Newswires) -- The Canadian dollar rallied in October, with the exchange rate against the US dollar declining to CA$1.3952 from CA$1.4196, making the loonie the second-best-performing G10 currency, according to MUFG Global Markets Research in a Monday note. The Canadian dollar was buoyed by higher oil prices and the Bank of Canada's 25 basis points rate hike to 2.50%, which markets had largely failed to anticipate at the start of the month, wrote MUFG in the note. Canada's weakening economic conditions make another December rate hike increasingly uncertain, said the bank. Employment dropped by 68,300 in September, pushing the unemployment rate to 6.5%, while inflation surprised to the downside. GDP was unchanged for a second straight month in August, leaving annualized third-quarter growth at around 1.3%, well below the BoC's 2.0% forecast. With spare capacity persisting, the BoC has signaled a cautious stance on further tightening. The oil boost may be limited by Canadian crude's deep discount to WTI, while falling US short-term yields narrowed the US-Canada yield gap, further supporting the Canadian dollar, added the bank. With USD/CAD below CA$1.4000, the loonie may have strengthened too far, too fast, said MUFG. Growing expectations of a BoC pause in December leave the currency vulnerable to consolidation following October's sharp rally. The bank still anticipates "modest" gains for the Canadian dollar in 2027.