JPMorgan clients have turned to buying the Canadian dollar, but USD/CAD quickly reversed its fall. Fading oil support and trade risks cloud the outlook ahead of the Bank of Canada's next decision.
JPMorgan's trading desk says clients have been selling USD/CAD across all customer categories, a shift that could give the Canadian dollar a short-term lift.
In commentary dated 6 October, the bank said clients had moved to selling the pair. That means selling US dollars to buy Canadian dollars. The shift broke with the persistent selling of the Canadian currency that the desk had observed recently, though JPMorgan's client activity does not show that the wider market has changed direction.
The bank sees room for the Canadian dollar to strengthen temporarily as investors unwind bearish positions. It also doubts that economic conditions can sustain the move. A currency can rise as traders close bets against it, even when the country's growth outlook has not improved. That kind of rebound is possible for the Canadian dollar; it does not by itself show stronger underlying demand for Canadian assets.
The move already looked fragile by Wednesday afternoon. USD/CAD had risen to 1.4259, reversing most of Tuesday's decline. At that rate, one US dollar buys more Canadian dollars, meaning the Canadian dollar had weakened over that stretch. This was a market quote at that point in the day, not a rate guaranteed to consumers exchanging cash or making card and bank transactions.
JPMorgan's concern is the gap between market positioning and economic fundamentals. When investors have piled into bets against the Canadian dollar, even a modest improvement in sentiment can prompt them to buy it back. That short-covering can push USD/CAD lower, without signaling stronger Canadian growth or better expected returns on investment.
The wider currency backdrop included US-dollar weakness after softer hiring, covered in an earlier jobs report. That episode helps explain the broader moves in the US dollar. It does not establish what caused this particular shift in the Canadian dollar.
Oil has also supported the Canadian dollar: higher prices can lift export revenues for an energy-producing country. JPMorgan says that support is starting to fade as oil retreats from its highs and traffic through the Middle East normalises somewhat. Easing supply disruption can lift broader confidence while reducing the energy-price advantage for Canadian producers.
Those forces point in opposite directions. Crowded bearish positions may unwind and support the Canadian dollar for a time, while softer oil support could cap its gains. JPMorgan's desk sees the risks to USD/CAD tilted upward, even as it allows for a near-term fall in the pair.
Canada's domestic outlook is another test. At its September policy decision, the Bank of Canada said the recovery was broadening through stronger consumption. Exports and business investment had also gained. The bank warned that new US tariffs, along with threats of further action, could put the recovery's sustainability at risk. Subdued labour demand pointed to spare capacity in the economy.
On 8 October, the Canadian dollar briefly gained about 0.1% to 1.4245 per US dollar after the gap between Canadian and US bond yields narrowed. The yield on two-year Canadian government bonds was then about 152 basis points below the comparable US yield. Earlier that week, the gap had reached 158 basis points, its widest since February 2025. The move came ahead of Canada's employment report.
Released on 9 October, the report showed Canadian employment fell by 68,000 in September, or 0.3%, according to Statistics Canada. Full-time employment declined by 35,000. Part-time employment fell by 33,000. The employment rate dropped 0.2 percentage points to 60.6%, while unemployment rose 0.1 point to 6.5%. Job losses hit education. Health care and social assistance also saw declines, as did manufacturing.
After the release, USD/CAD reached 1.4298, its highest level since April 2025. Reuters reported the Canadian dollar down about 0.4% at 1.4275 per US dollar, equivalent to 70.05 US cents. The currency was also heading for a fifth consecutive weekly decline. Market pricing for a Bank of Canada rate increase at the 28 October meeting fell from 40% to 25%.
The Bank of Canada held its policy rate at 2.25% in September. In October, the Federal Reserve's target range was 3.75% to 4.00%, while Canadian annual inflation was reported at 3.0%. The policy-rate gap and weaker employment figures shape the backdrop to the Bank of Canada's next decision. Persistent inflation remains another consideration for policymakers.
On 8 October, the Bank of Canada and the federal government met as part of a review and renewal of their monetary policy agreement. The five-year review concerns the framework for the Bank's inflation-targeting policy. The Bank of Canada meeting notice records the October session. The framework review is separate from market expectations for the rate decision scheduled for 28 October.
The Bank of Canada's business and consumer expectations surveys were scheduled for 19 October, ahead of the 28 October rate decision. In September, the bank weighed a more uncertain growth outlook against the risk that elevated energy costs would spread into other prices. Stronger activity would give the Canadian dollar a firmer basis for investment than a move driven mainly by traders closing bearish positions.
These figures are separate snapshots, not a single trend measure. JPMorgan's commentary was dated 6 October. By Wednesday afternoon, USD/CAD stood at 1.4259 after reversing most of Tuesday's decline. The Bank of Canada's policy rate remained at 2.25% following its September decision.
Positioning and investment demand affect currencies through different channels. Short-covering comes from investors reversing earlier trades, so it can move quickly without changing companies' prospects or the expected return on new investment. A more lasting Canadian-dollar advance would need support from conditions that draw sustained demand for Canadian assets. The desk's client flows show a shift, not proof that this support has arrived.
The Bank of Canada's next decision and updated economic projections were scheduled for 28 October.
