Canadian Dollar Strengthens on Bank of Canada Rate Hike Bets, MUFG Says

07:35 AM EDT, 10/20/2026 (MT Newswires) -- The Canadian dollar has strengthened against the US dollar as market expectations for a Bank of Canada interest rate hike have increased, with investors increasingly anticipating a 25-basis-point increase as early as the Oct. 28 policy meeting, according to a Tuesday note from MUFG Global Research. Pricing now reflects around 21bps of tightening, compared with 9bps at the end of last week, following three major Canadian banks' revisions to their forecasts in favor of a rate hike at next week's policy meeting, wrote MUFG in the note. Canada's September headline and core consumer price index on Monday eased slightly below expectations to 3.1% and 1.9% annually, respectively, said the bank. However, BoC surveys also on Monday showed rising long-term household inflation expectations, while around half of businesses plan to pass higher energy and tariff costs on to customers, signaling persistent inflationary pressures. Canada's central bank appears increasingly open to tightening policy, making a rate hike next week plausible if inflation risks remain the priority and markets continue to price in a high likelihood of an increase, added MUFG. However, recent economic weakness, including a second consecutive month of heavy job losses in September, leaves the decision finely balanced, said the bank. A hike could also strengthen expectations of another increase in December, further supporting the Canadian dollar.