Divergent monetary policy expectations between the Federal Reserve and Bank of Canada remain the dominant driver of USD/CAD positioning near 1.42 in early October 2026. The Fed’s September hike to a 3.75–4.00% target range, paired with elevated Treasury yields near 5.3%, has widened the policy-rate gap to roughly 1.6 percentage points against the BoC’s steady 2.25% rate, supporting USD strength. Recent soft U.S. payrolls and Canadian trade-surplus data have tempered immediate hike bets, yet markets still price further Fed tightening through year-end. Escalating U.S.-Canada tariff measures add downside pressure on the loonie, while elevated oil prices provide only partial offset. Key near-term catalysts include October 28 central-bank decisions and upcoming inflation and employment releases that could shift the implied rate path.