Economic Outlook and Summary
September brought the first Fed rate cut in 2025, which led to analysts and economists re-evaluating the forecasts for US interest rates for the next six quarters. However, the European Central Bank and the Bank of England did not follow the Fed’s lead and left their benchmark rates unchanged.
President Trump roiled markets with his attempt to stack the Fed’s Board of Governors with his loyalists. A Federal Court of Appeal upheld a lower court decision that said Trump did not have the authority to fire Governor Lisa Cook, so she remains a FOMC member until the Supreme Court hears her case sometime in January.
Trump and his tariffs were center stage, with levies ranging from 10–50% being slapped on softwood lumber, kitchen cabinets, and upholstered wooden furniture.
October has begun with a high degree of uncertainty. The US budget debate ended with the government being closed, which means all government economic reports will not be released. That includes the key US nonfarm payrolls report. Third-quarter US corporate earnings begin the week of October 7 and, in the absence of government economic data, will provide fuel for FX trading.
The USD and Federal Reserve
The Fed is expected to cut rates by 25 bps at the October 29 meeting and then another 25 bps on December 10. A host of economic data released since the September FOMC supports that view. The surprisingly weak ADP employment data has achieved a higher level of importance due to the government shutdown preventing the release of the NFP report. (ADP actual -32,000 vs forecast 50,000).
The US dollar index (DXY) spent the first half of September sliding and the second half recouping all of its losses. Sentiment is negative, and the outlook for US rates will limit gains in October.
The Canadian Dollar and Bank of Canada
The Bank of Canada (BoC) cut its benchmark rate to 2.50% on September 17, which was expected. Governor Tiff Macklem delivered a downbeat speech in Saskatchewan, where he reiterated how US tariffs on softwood lumber, steel, and aluminum have disrupted Canadian exports. He went on to say that growth, employment, and investment are under strain, while noting exports fell sharply in Q2 2025. He said this uncertainty is causing firms to pause investment and hiring. The BoC is meeting on October 29, and another rate cut is likely.
The Canadian dollar traded uneventfully in a USDCAD range of 1.3730 to 1.3890 until the last week of the month, when more robust-than-expected US economic reports suggested that the Fed could be less aggressive when trimming rates. That issue disappeared, but new tariffs, rising geopolitical tensions due to Russian drones in NATO airspace, and the US government shutdown gave the greenback a new bid.
Oil Prices
WTI oil churned in a 61.43–65.98 range until the last days of September. Then rumours surfaced that Opec may increase production by as much as 500,000 barrels/day on October 5 as it works to rapidly unwind the last of the voluntary production cuts instigated in mid-2022. If so, WTI could test the April low of 55.00/b.
Sources: Bloomberg, Investing.com, Reuters
Bank 2025-USD/CAD Q3 2025-USD/CAD Q4
Scotiabank* 1.3600 1.3400
BMO 1.3600 1.3500
CIBC 1.3600 1.3500
TD Bank* 1.3800 1.3700
National Bank 1.3900 1.3700
*Forecast is based on last month. Does not include post Tariff moves. Forecast Table is for mid-market rates, and subject to change anytime.
