Canadian investors are heading into the week of September 21–25 with an unusual mix of signals. Oil is still above US$100. Canadian inflation is sitting at 3.0%. The Canadian dollar has weakened. The U.S. Federal Reserve has started raising interest rates again, while the Bank of Canada is still holding its policy rate at 2.25%. And despite all of that, the TSX managed to finish last week slightly higher.
To me, that is the story heading into this week. It is not simply about oil anymore. It is about how Canada navigates an environment where energy prices remain high while monetary policy on the other side of the border is becoming more restrictive. For long-term Canadian investors, I think that is much more important than trying to guess whether the TSX will be green or red on Monday morning.
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The Canada-U.S. Rate Gap Is Getting Harder to Ignore
The biggest development last week came from the U.S. Federal Reserve. On September 16, the Fed raised its target range by 25 basis points to 3.75%–4.00%. It was the first U.S. rate increase since 2023, and the Fed’s latest projections showed that most policymakers see further tightening as appropriate before the end of 2026. Canada is in a very different position.
The Bank of Canada held its overnight rate at 2.25% earlier this month. That leaves a significant gap between Canadian and U.S. short-term rates. That gap matters because money can be attracted toward markets offering higher yields, all else being equal. One place we are already seeing the pressure is the Canadian dollar. The loonie fell roughly 1% last week and finished Friday near US$0.7138, while the gap between Canadian and U.S. bond yields widened.
A weaker Canadian dollar is not automatically good or bad. It can help Canadian exporters, and foreign revenues can translate into more Canadian dollars for companies earning substantial amounts in the United States. On the other hand, a weaker loonie can make imported goods more expensive and potentially add another layer of inflation pressure. That is why I think Canadian investors should pay more attention to the currency right now than they normally might.
Oil Is Still the Wildcard
Even though I don’t want this week’s outlook to be another article entirely about oil, we can’t ignore it. Brent crude finished Friday at US$104.87 per barrel, while WTI settled at US$100.30. Middle East supply disruptions and uncertainty surrounding major shipping routes continue to keep the energy market unsettled. For Canada, high oil creates a complicated situation.
Elevated crude prices can improve cash flow for Canadian oil producers and support activity in Western Canada. Energy also represents a meaningful portion of the TSX, so strong commodity prices can provide support to parts of the Canadian market. But there is another side. The Bank of Canada has acknowledged that persistently high energy prices are keeping headline inflation elevated.
Its latest deliberations showed concern that if those pressures begin spreading beyond gasoline and energy into other goods and services, monetary policy could eventually have to respond. So far, the Bank has seen limited evidence of broad pass-through. That is encouraging, but it is also why the next few inflation reports matter.
The Bank of Canada Gets the Spotlight Monday
The first thing I’ll be watching this week happens Monday. Bank of Canada Governor Tiff Macklem is scheduled to speak in Halifax on September 21 about economic developments, followed by a press conference. I wouldn’t expect one speech to suddenly rewrite the Bank’s entire policy outlook. What I’ll be listening for is the tone. Does Macklem continue to emphasize weakness in the Canadian economy and excess supply?
Or does the conversation begin shifting toward the inflation risks created by high energy prices, tariffs and other cost pressures? Canada is dealing with different economic conditions than the United States, which gives the Bank of Canada reasons to avoid unnecessarily restrictive policy. But the Bank also has a clear inflation mandate.
Canadian CPI was 3.0% year over year in August, unchanged from July, although inflation excluding gasoline was lower at 2.4%. If inflationary pressures begin to broaden while the Federal Reserve continues raising rates, the Bank could face increasingly uncomfortable trade-offs. That doesn’t mean a Canadian rate increase is necessarily coming next. It simply means the range of possible outcomes is becoming wider.
What Canadian Consumers Tell Us Thursday
The other Canadian release I’ll be watching is July retail sales, scheduled for Thursday, September 24. Retail sales are useful right now because the Canadian consumer remains an important part of the economic picture. Higher food, energy and borrowing costs can eventually change spending behaviour.
If consumers continue spending reasonably well, it could suggest the economy is absorbing some of these pressures better than feared. If spending weakens materially, it could reinforce the argument that Canada still has enough economic slack to contain broader inflation pressures. Either way, the number provides another piece of evidence for the Bank of Canada.
The TSX Is Holding Up Better Than the Headlines Suggest
Canadian stocks did not collapse under all this uncertainty last week. The S&P/TSX Composite finished Friday at 35,804.86 and gained about 0.3% for the week, ending four consecutive weekly declines. I think that’s a useful reminder for long-term investors. A difficult macroeconomic backdrop doesn’t automatically translate into every company or sector performing poorly.
Higher oil can help energy producers while hurting transportation-heavy businesses. Higher bond yields can pressure some rate-sensitive sectors. A weaker Canadian dollar can be a headwind for importers and potentially an advantage for exporters. The market underneath the index can look very different depending on where you look.
One Longer-Term Development I’m Watching
The federal government also proposed a significant expansion of immediate expensing for business investment last week. Finance Canada estimates its proposed Productivity Mega Deduction would reduce Canada’s marginal effective tax rate on new business investment from 13.0% to 6.4%. On paper, that improves the tax treatment of new investment. But from an investor’s perspective, I think the important part comes later. Do Canadian companies actually increase capital spending? Does productivity improve? Do new projects get built? And does that eventually show up in revenue, margins and earnings? Tax policy can create an incentive. Businesses still have to respond to it.
What I’m Watching This Week
Heading into the week, I have four things on my radar: Tiff Macklem’s Monday speech, Thursday’s Canadian retail-sales report, the Canadian dollar and oil. I’ll also be watching geopolitical developments surrounding the United Nations General Assembly because meaningful changes in Middle East tensions could quickly affect crude prices, inflation expectations and bond yields. My approach hasn’t changed.
I’m not trying to predict next Friday’s TSX level or guess the Bank of Canada’s next decision before the data arrives. I’m looking for signs that the investing environment itself is changing. Right now, the widening gap between Canadian and U.S. interest rates, a weaker Canadian dollar and oil above US$100 are all pulling on the Canadian economy in different directions. That makes this a week worth watching—not because investors need to react to every headline, but because we may start getting a clearer picture of which of those forces matters most.
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