Canadian Dollar Faces US Trade War Headwinds Despite Hawkish Central Bank, Commerzbank Says

07:51 AM EDT, 10/26/2026 (MT Newswires) -- The Canadian dollar continues to underperform its G10 peers this year, as firmer Bank of Canada interest rate expectations provide some support while trade tensions with the US weigh on the currency's outlook, according to Commerzbank Research in a Monday note. BoC Governor Tiff Macklem said sustained high oil prices are providing more economic support than expected but also raising inflation risks, potentially prompting an upward revision to inflation forecasts and a rate hike before year-end. However, subdued core inflation and a weakening labor market may limit further tightening, wrote Commerzbank in the note. Financial markets are pricing in more than four rate hikes by next September, an outlook that appears overly hawkish, said the bank. While expected BoC tightening could support the Canadian dollar in the near term, much of this shift is already priced in, limiting further upside. Trade tensions with the US remain a major downside risk, with President Donald Trump threatening to raise tariffs on Canadian cars to 50% from Jan. 1, added Commerzbank. The threat of retaliation and persistent uncertainty could curb business investment and weigh on growth. At the same time, Canada's reliance on the US market limits its ability to find alternative trading partners in the near term.