Five separate stories ran across HDQ desks this week: an availability heuristic in client psychology, a stable prescribed rate for income splitting, a bond market absorbing a Fed hike, a mispriced oil market, and a Canadian dollar sliding to multi-week lows. Read together, four of the five trace back to a single mechanism that has not resolved and will not resolve before the Bank of Canada next meets. The fifth, oil, moved for reasons that have almost nothing to do with it.
The Mechanism Running Underneath Everything
On September 16, the Federal Reserve raised its target range a quarter point to 3.75 to 4.00 percent, its first increase since 2023, delivered by Chair Kevin Warsh with a hawkish tone that left 16 of 19 policymakers signalling at least one further move this year. The Bank of Canada has not matched it. It held its overnight rate at 2.25 percent on September 2 for a seventh consecutive decision, citing Middle East energy pressure and the breakdown in Canada-US trade talks as reasons to wait rather than tighten. That gap, now 175 basis points, is the widest of this cycle, and it sat behind three of this week five articles without most clients ever hearing the phrase "policy divergence."
The shaded region marks the ten sessions since the September 16 Fed decision, during which the Canadian dollar has weakened in nine of ten sessions against the US dollar.
Where the Gap Showed Up: Bonds, Mining, and the Prescribed Rate
Government of Canada 10-year yields climbed as high as 3.998 percent intraday Thursday, their highest level in more than three years, before easing to 3.95 percent Friday as markets reassessed the pace of this week's global bond selloff. That climb, working through the same rate-gap channel, pressured the rate-sensitive mining names that make up a large share of the TSX and produced Wednesday's 584-point single session decline, the index sharpest drop in three months. It is also the reason the Tax and Wealth desk flagged this week: six straight quarters of a flat 3 percent CRA prescribed rate is a planning window that has nothing to do with Bank of Canada policy and everything to do with short-term Treasury bill auctions, a distinction worth making explicitly with clients who conflate the two rates.
The Behavioural desk take on Wednesday drop matters here too. Clients recalling one 584-point session in isolation are working from an incomplete sample; the same week produced a fresh TSX high on September 22 at 36,335.61. The mechanism behind the panic-worthy headline and the mechanism behind the currency slide are the same one: a rate gap that has been building since September 2 and accelerated on September 16, not a single-day shock.
The Outlier: Oil Moved for Its Own Reasons
Everything above traces to the Fed-BoC gap. Oil did not. WTI crude eased to roughly 92.55 US dollars Friday, its softest level of the week, on reports that Washington and Tehran were weighing a phased arrangement to reopen the Strait of Hormuz, alongside signs Saudi Arabia's East-West pipeline could resume fuller flows. That is a markets-pricing-in-hope move. The Strait itself has not reopened. It has now been effectively closed to commercial shipping for 208 days, with transit still near one percent of its pre-crisis rate, and Friday brought no change to that fact on the water, only to the odds traders assign a deal.
The green reference line marks the September 10 peak of 102.48 dollars; Friday close sits nearly 10 dollars below it despite no change in the underlying Strait closure.
What to Carry Into Next Week
The Bank of Canada does not meet again until October 28, when it delivers a full Monetary Policy Report for the first time since April. Until then, the 175 basis point gap with the Federal Reserve is the fixed input behind currency, bond, and mining sector moves, while oil trades on Hormuz headlines that may or may not translate into an actual change in barrel flow. The distinction that mattered across every desk this week was the same one: a single vivid data point, whether a 584-point index drop or a weekend Hormuz headline, is not the same as the underlying trend, and advisors who can separate the two have the more useful conversation with clients than the headline offers on its own.