By Michael O’Neill

Thanksgiving is a time to count your blessings, overeat, and pretend nobody notices how much wine you’ve consumed. But for the Canadian dollar, there isn’t enough wine in the cellar to forget how miserable 2026 has been.

One of the reasons is the unwanted guests who crashed the dinner. Tariffs, geopolitical uncertainty, soft domestic data and an unruly US Treasury market are sitting around the table. And Treasury Secretary Scott Bessent may be the biggest troublemaker of them all.

A Turkey in Need of Stuffing

Bessent arrived at Treasury with an impressive résumé as a hedge-fund manager who made billions betting against central banks when markets decided their attempts to defend unsustainable prices were doomed to fail. Now he finds himself on the other side of the trade, trying to persuade investors that the US government can influence prices in markets that don’t particularly care what the Treasury Secretary thinks.

That hasn’t gone especially well. His push to increase Treasury buybacks was meant to ease pressure on long-term yields. Instead, the 10-year yield has climbed steadily since July, rising from 4.36% to 5.36% by October 7, while the 30-year yield has surged to heights not seen in over two decades. Within weeks, Bessent acknowledged that he couldn’t set the market’s equilibrium price. For a man whose reputation was built on understanding the market’s power, that was an uncomfortable admission.

Earlier, while basking in the glow of a successful intervention with Japan’s Ministry of Finance to prop up the value of the Japanese yen, he boasted that he was “the house” when it came to the yen. The joint intervention spent roughly $87 billion over two days, which is barely a rounding error against the USDJPY daily turnover of about $1.37 trillion. Arguably, he is a “tool shed” at best.

No Thanks for the Tariffs

Speaking of tools, Trump’s Section 232 tariffs on Canadian goods changed how the levy on tools made from steel, aluminum, and copper was calculated. Duties are now applied to the full customs value rather than just the metal content.

Canada responded on September 8, 2026, with counter-tariffs covering C$27.6 billion of US goods. The measures included tariffs of 15% to 50% on a range of products, including a surprisingly extensive selection of American tools. (Bessent was not on the list.)

The counter-tariffs are just another tax on Canadians collected by Ottawa. Washington’s Section 232 duties are a tax on Americans, collected by Washington. Two governments, each billing its own businesses, means more revenue for both.

For Canadians, higher import costs will eventually find their way into prices, while weaker demand for Canadian exports threatens employment and business investment.

FOMC Dishes Up Lumpy Gravy

The FOMC minutes confirm that the September rate hike was merely an insurance bump against inflation getting out of hand. It was a unanimous decision but the minutes also show plenty of disagreement over why rates need to go higher. Some policymakers saw inflation as the main problem, while others were more concerned about stronger demand, energy prices, tariffs and the inflationary impact of the AI investment boom. Several members even described the current policy rate as only mildly restrictive.

Then came the September employment report, and the Fed’s job became considerably more complicated. Payrolls increased by just 29,000, the unemployment rate rose to 4.2%, and the October rate-hike odds collapsed. In addition, a rash of Fed speakers, including New York Fed President John Williams, Vice Chair Philip Jefferson, Governor Michelle Bowman and Minneapolis Fed President Neel Kashkari, pushed back against expectations of an October hike, arguing for patience and more data before making the next move. That has taken an October rate hike off the table, but the odds for a 25bp increase to 4.25% in December are over 70%.

Loonie Risks Getting Overcooked

The loonie may stay in the oven longer than anyone planned. Montreal futures traders believe that the Bank of Canada has stopped arguing about “if” and started arguing about “when” its benchmark rate, which has sat at 2.25% since October 2025, will be increased. They think the odds for a 25bp rate hike in December are about 73%. If so, the move would align the BoC with the rest of the G-10 major central banks that have already tightened.

However, as of September 16, all of the major Canadian bank economists think the BoC will stand pat.

The Canada-US 2-year and 10-year yield spreads have widened over the past month, roughly 26 bps and 32 bps, respectively. That yield differential has cranked the oven temperature, and the loonie is starting to smoke.

The BoC’s Thanksgiving dilemma: do they cut rates to help an economy being squeezed by tariffs, weak domestic activity and a softer labour market, or hike rates to avoid making an already ugly interest-rate differential even uglier on the pretext of combatting inflation?

This Thanksgiving the loonie is the turkey on the table.