Loonie Stays Pinned Near 1.4145 as Yields Widen the Gap

The Canadian dollar remained under pressure on September 25, 2026, with USD/CAD opening at 1.4145 after a 1.4139 close, as rising US Treasury yields and markets pricing three Fed rate increases by March 2027 widened the greenback's interest-rate advantage.

The Canadian dollar spent another session on the defensive. USD/CAD opened at 1.4145 after closing the prior day at 1.4139, with an overnight band of 1.4134 to 1.4154 — a narrow range, but one that sat entirely on the weak side of the Loonie's recent trading. The currency is not collapsing. It is simply being held down by two forces that both happen to point the same way at once: a widening interest-rate gap in favour of the US dollar, and a crude market that has started to price in the possibility that the Strait of Hormuz reopens.

A rate gap the Bank of Canada may not be able to close

The immediate driver is the US Treasury market. Yields have been climbing, and futures traders are now positioned for three Federal Reserve rate increases by March 2027. That is a hawkish path by any standard, and it is the sort of repricing that mechanically pulls capital toward dollar-denominated assets. Higher yields on one side of the border mean a better carry — the return an investor earns simply for holding one currency's short-term paper over another's — and the Loonie is on the wrong side of it.

The question is not whether the Fed can deliver that path. It is whether the Bank of Canada could follow even if it wanted to. Canadian growth has been soft, and the tariff regime imposed under the Trump administration adds a direct drag on an economy where roughly the bulk of merchandise exports head south. A central bank tightening into that combination would be tightening into a headwind of its own making. Markets appear to have concluded that the BoC will lag, and that conclusion is being expressed in the exchange rate rather than in Canadian rate futures.

This is the structural problem for CAD bulls. Currency pairs do not need a crisis to drift; they need a persistent differential. As long as the market believes the Fed's terminal rate is heading up while Canada's is stuck, every quiet session tends to leak a little further in the dollar's favour. The overnight range on Thursday — barely twenty pips wide — is the signature of a market that is not panicking but is not buying the Loonie either.

Hormuz talk takes the oil bid away

The second force is crude, and here the move was considerably more violent. WTI fell from 96.75 to 92.65 in the morning session, surrendering most of the prior day's rally, before settling around $93.00. That is a drop of roughly $4.10 a barrel, or about 4.2% peak to trough on the move — a large single-session swing in a market that has been trading on geopolitical headlines for weeks.

The catalyst was diplomatic. Reports emerged that Washington and Tehran had discussed a phased arrangement that could eventually restore traffic through the Strait of Hormuz, the chokepoint through which a substantial share of seaborne crude normally moves. Iran's Foreign Minister Araghchi confirmed that Tehran had submitted a proposal through intermediaries this week, reportedly attaching a seven-day window for Washington to satisfy a set of conditions. As Baystreet noted in its morning currency wrap, traders read the headlines as marginally constructive and took risk premium out of crude accordingly.

For the Canadian dollar, that is an unwelcome development in the short run. CAD has historically traded with a positive correlation to oil, and a shut Hormuz has been quietly supportive of Canadian crude economics by keeping global benchmarks elevated. A reopening — even a phased, conditional, seven-day-ultimatum version of one — removes that prop. The Loonie is therefore losing on both legs at the same time: the rate leg and the commodity leg.

What a reopening would actually do to CAD

It is worth being precise about the mechanism, because the oil-CAD link is often overstated. Canada does not sell into Hormuz. What it sells is heavy crude priced at a differential to a global benchmark that Hormuz helps set. If the strait reopens and global benchmarks fall toward pre-disruption levels, Canadian export revenues fall with them, the terms of trade deteriorate, and the currency follows. The transmission runs through the national income account, not through shipping lanes.

The offsetting consideration is inflation. Cheaper crude eases headline price pressure everywhere, including in the United States. If a sustained decline in oil prices softens US inflation expectations, the market's conviction about three Fed increases by March 2027 could erode — and the rate differential that is currently crushing the Loonie would narrow. In that scenario, the oil leg and the rate leg start working against each other rather than together, which would at least stabilise USD/CAD even if it does not reverse it.

Gold, meanwhile, held at $4,295.35, which tells its own story. A bullion price at that level alongside rising real yields is unusual; it suggests demand driven by geopolitical hedging and reserve diversification rather than by rate expectations. Traders watching for confirmation that the Hormuz thaw is real should watch whether gold gives ground as crude does. If it does not, the market does not believe the deal.

Trade policy is the quiet variable

The third piece is trade. Treasury Secretary Bessent confirmed an extension of the existing trade arrangement with China ahead of the Trump-Xi summit — the most consequential outcome of that meeting was effectively settled before the principals sat down. Extension is not resolution, but it removes a tail risk from global risk appetite, which is broadly supportive of the US dollar as the funding and reserve currency of choice.

For Canada the relevant trade question is different and less resolved. Tariffs remain a live drag on the domestic economy, and they constrain the Bank of Canada in precisely the way that keeps the rate differential wide. Any signal that Canadian exporters are getting relief would matter more for CAD than another round of US-China headlines.

Equity markets, for their part, were untroubled. At the close on Friday, September 25, 2026, the S&P 500 tracker (NYSEARCA: SPY) finished at $771.35, up 0.54% from the prior close of $767.18. The Nasdaq 100 fund (NASDAQ: QQQ) ended at $744.50, up 0.46%, and the Dow tracker (NYSEARCA: DIA) closed at $517.49, up 0.94%. Cheaper crude and a deferred trade fight are a reasonable combination for US risk assets — and a poor one for the Loonie.

What to watch next

• The seven-day clock. Tehran's reported deadline for Washington creates a defined event window. Failure resets the Hormuz risk premium and lifts crude; acceptance extends the slide.
• Fed pricing. Any softening in the three-hike-by-March-2027 path is the single most direct route to a firmer Canadian dollar.
• The 1.4154 overnight high. A clean break above the session range would confirm that the drift is a trend rather than consolidation.
• Canadian data. Evidence that tariff drag is deepening would reinforce the market's view that the BoC cannot match the Fed.

For now the Loonie is where the headline says it is: submerged, without the buoyancy of either yields or oil to lift it.

Key facts

• USD/CAD open: 1.4145 (prior close 1.4139)
• Overnight range: 1.4134–1.4154
• WTI crude: $93.00 after sliding from 96.75 to 92.65
• Fed pricing: Three rate increases by March 2027

Frequently asked questions

Why is the Canadian dollar weakening against the US dollar?

Two forces are pushing the same way. Rising US Treasury yields have widened the interest-rate advantage held by the greenback, with markets pricing three Federal Reserve rate increases by March 2027. At the same time, crude oil has fallen sharply on reports of a possible Hormuz reopening, removing the commodity support the Loonie normally enjoys.

What were the exact USD/CAD levels quoted?

USD/CAD opened at 1.4145 after closing the previous session at 1.4139. The overnight range was 1.4134 to 1.4154, a narrow band of roughly twenty pips that sat entirely on the weak side for the Canadian dollar. A sustained break above 1.4154 would suggest the drift is becoming a trend rather than consolidation.

How far did oil prices fall?

West Texas Intermediate crude dropped from 96.75 to 92.65 during the morning session before settling around $93.00, surrendering most of the prior day's rally. The decline followed reports that Washington and Tehran had discussed a phased arrangement that could eventually restore shipping traffic through the Strait of Hormuz.

What did Iran propose regarding the Strait of Hormuz?

Iran's Foreign Minister Araghchi confirmed that Tehran had submitted a proposal through intermediaries during the week. The proposal reportedly gave Washington seven days to satisfy a series of conditions. Traders read the development as marginally constructive and removed geopolitical risk premium from crude prices in response.

Why can't the Bank of Canada simply match Fed rate increases?

Canadian economic growth has been weak, and tariffs imposed under the Trump administration add a further drag. Raising rates into that combination would compound the slowdown. Markets have concluded the Bank of Canada will lag the Fed, and that expectation is being expressed through the exchange rate rather than through Canadian rate futures.

Could falling oil prices eventually help the Canadian dollar?

Indirectly, yes. Cheaper crude eases headline inflation, including in the United States. If that softens US inflation expectations, the market's conviction about three Fed increases by March 2027 could weaken, narrowing the rate differential currently weighing on the Loonie. In that case the oil and rate channels would offset each other rather than compound.

Sources

• USD / CAD - Canadian Dollar still submerged — Baystreet