Economic Outlook and Summary
October lived up to its scary reputation. It was filled with equity drama, central bank rate hikes, on again-off-again US threats to renew attacks on Iran, which all occurred against the backdrop of the US mid-term elections.
October was supposed to be the Fed’s month. The Bank of Canada stole the show. On October 28, the BoC raised its overnight rate 25 bp to 2.50%, its first hike since July 2023, while the Fed held at 4.00% a few hours later.
Wall Street had a rougher ride. The S&P 500 slipped 0.93% and the Nasdaq dropped 5.30% as doubts about the payoff from AI spending hammered tech, with Alphabet plunging more than 12% after earnings. The Dow somehow gained 1.70%. The TSX had its worst day since June on October 30. Bonds rallied, and the 10-year Treasury yield fell 37 bp to 4.92% after a dismal September jobs report.
Oil went the other way. WTI rose 13.7% in October to just under $103 as Iran escalated attacks around the Strait of Hormuz and Brent touched $110. It has since dropped to $93.24/b after Trump said he would not attack Iran, like he threatened to do, prior to the midterm elections.
November opens with a very different Washington. Democrats routed the GOP in the midterms, flipping both chambers. As of this morning, The New York Times has Democrats at 54 Senate seats, including seven flips, and 228 House seats against 139 for Republicans, with counting still under way.
The USD and Federal Reserve
The US dollar ended October close to where it started. The DXY finished at 101.92, up 0.41% on the month, and has slipped to around 101.50 since. A hawkish Fed and soaring oil prices kept it bid, while weak jobs data and falling yields capped the gains.
The Fed decision to leave rates unchanged was not unanimous. Governor Lisa Cook and Cleveland Fed President Beth Hammack favoured a 25 bp hike. Chair Kevin Warsh said that politics did not play a role in the decision while emphasizing that “We will deliver price stability. No ifs, ands, or buts.”
Since then, the data hasn’t made his life easier. Q3 GDP grew at a 3.4% annualized pace, September PCE inflation rose to 3.6% and core PCE hit 3.1%.
November’s data will decide whether December brings a second hike which the CME FedWatch tool suggests is widely expected (78%). October payrolls arrive November 6, CPI on November 10 and PCE on November 25, all ahead of the December 8–9 FOMC meeting.
The Canadian Dollar and Bank of Canada
The loonie started October in rough shape. Canada lost 68,000 jobs in September, its second straight monthly decline, and unemployment rose to 6.5%. Wage growth slowed to 2.3%. USDCAD climbed to about 1.4300 on October 9 and the Canadian dollar sank to an 18-month low as traders scaled back BoC hike bets.
September CPI changed the conversation. Headline inflation rose to 3.1%, with gasoline up 27.8% y/y, even though the Bank’s preferred core measures were tame, with CPI-trim at 1.8% and CPI-median at 1.9%. Policymakers decided they could not risk high energy prices spreading into everything else.
On October 28, the Bank raised its overnight rate to 2.50% and Governor Tiff Macklem said, “There could be a need to increase the policy rate further, but given uncertainties, we will proceed carefully.”
Canada’s October jobs report is released November 6, followed by inflation numbers on November 16 and Q3 GDP on November 30. The Bank of Canada decision is December 9.
Oil Prices
WTI spent October climbing a wall of worry. Iran escalated attacks around the Strait of Hormuz, and prices climbed from about $88 early in the month to a peak near $105 on October 30. Brent touched $110 on October 16. WTI finished the month just under $103, up 13.7%.
The reversal was swift. Trump said he would not follow through on his threat to attack Iran before the midterm elections, and reports surfaced that Iran’s supreme leader and top security official had discussed conditions to end the war. Then the Doha talks with Qatari mediators knocked WTI down 6% on November 2. On November 4, WTI hit $93.24.
Bank 2026-USD/CAD Q4 2027-USD/CAD Q1
Scotiabank* 1.3900 1.3800
BMO 1.4000 1.3900
CIBC 1.4200 1.3900
TD Bank 1.4100 1.4000
National Bank 1.4300 1.3900
*Forecast is based on last month. Forecast Table is for mid-market rates, and subject to change anytime.
