October was the opposite of September. Where September was mostly a “risk-on” month thanks to Powell’s dovish comments at the end of August, October was full-bore risk off. A somewhat hawkish Fed rate cut and the run-up to the US election saw a broad-based shift into long US dollar positions and a sell-off of US bonds.
The US 10-year Treasury yield rallied steadily, rising from 3.69% at the beginning of October to 4.29%, where it closed on October 31.
Donald Trump is returning to the White House and Americans elected him in a decisive fashion. Trump secured at least 295 electoral college votes to Ms Harris’s 226, and he also won the popular vote. Americans voted their displeasure with the incumbent party and gave the Republican Party control of the Senate and likely the House as well.
Trump campaigned on a policy of cutting taxes and protectionism. He wants to bring jobs back to America, and to accomplish that goal, he said he would slap a 10% levy on all imports. India and China get special attention with tariffs of 25% and up to 100% respectively.
World governments and central bankers are huddling and attempting to develop a new strategy to deal with the new world order.
The USD and Federal Reserve
The US dollar index (DXY) took a one-way ride higher throughout October, rising from 100.47 at the beginning of the month and closing at 103.86 at month end. The index spiked to 105.40 in the wake of Trump’s win, then consolidated the gains after the November 7 FOMC meeting. The Fed cut rates by 25% to 4.75%, which came as no surprise to markets and justified the move because they are confident that inflation will continue to fall to its target while trying to maintain the economy’s strength.
The next Fed meeting is December 18. It will be an entertaining seven weeks as global markets will attempt to balance the effect of incoming economic data and what it means for Fed policy, with inflationary risks from the Trump 2.0 administration. The data should overshadow the Trump speculation because Trump does not take control until January 20, 2025.
The Canadian Dollar and Bank of Canada
The Canadian dollar was a casualty of revised outlooks for Fed rate cuts, the surge in US 10-year yields and the “just-in-case-Trump-wins” trades. The US dollar was in demand across the board and the Canadian dollar weakened steadily through October. The Bank of Canada cut rates by 50 bps on October 23 due to low inflation and weak economic growth. Two weeks later, and the Canadian economy is weaker than expected and inflation is still falling, raising expectations for a follow-up 50 bp rate cut on December 11. However, the surprise (to many) Trump victory and his penchant for tariffs may force policymakers to adopt a slower easing trajectory.
Oil Prices
WTI oil prices were choppy but stuck in a 66.05-77.60 range. Traders were nervous ahead of the highly anticipated Israeli response to unprovoked Iranian aggression, but it came and went with little fanfare. Iranian energy infrastructure was left alone but Israel still demonstrated that it had the ability to hit any target in Iran at will, and Iran was powerless to stop them. Prices retreated but then OPEC announced it would delay December’s planned production increase until January 2025.
Bank
2024-USD/CAD Q4 2025-USD/CAD Q1
Scotiabank* 1.3600 1.3000
BMO 1.3900 1.3900
CIBC 1.3900 1.4100
TD Bank* 1.3700 1.3500
National Bank 1.4100 1.4500
*Forecast is based on last month. Forecast Table is for mid-market rates, and subject to change anytime.
