Opens in a new window.The first half of 2026 defied market consensus within North American Fixed Income, Currency, and Commodity (FICC) markets, reshaping expectations for the second half of the year. This was largely driven by economic divergence between Canada and the U.S., geopolitical supply shocks in the Middle East and physical asset squeezing within commodity markets. Our ATB Cormark Capital Markets’ FICC team is highlighting several crucial drivers for the second half of the year, including ongoing trade renegotiations, the upcoming U.S. midterm elections and central bank policy friction.
For Canadian corporate management teams, navigating this complex macroeconomic landscape requires execution discipline over getting fixated on timing the market. Our FICC team highlights that implementing a proactive hedging strategy provides greater predictability over making reactive, headline-driven decisions.
Updated July 22, 2026
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Mark Johnson, MD & Head of Rates
ATB Cormark Capital Markets
2026 began with a global expectation toward widespread monetary easing in the US. However, key drivers during the first half of the year – including positive economic data, the conflict in the Middle East and a hawkish stance by central bank figures like Kevin Warsh – shifted markets from easing toward projecting 1-2 rate hikes for 2026.
There was also a widening growth gap as a resilient 2% U.S. GDP growth rate contrasted with the calling of a technical recession in Canada, a downturn marked by minimal changes in growth, 2.1% Core inflation and an unemployment rate consistently in the elevated range of 6.5% to 7.0% (as workforce reduction offset lowered demand for workers).
The contrast between these two economies ultimately underpinned a move to extend projections of the current, historically wide 140 basis point differential in overnight rates as far out as 2 years. While global volatility and geopolitical conflicts pressured markets, creating periods of high volatility, Canadian front-end bond yields have experienced very little net movement to date in 2026 overall. In contrast, the move to expected hikes from expected cuts has driven rate steadily higher.
Looking ahead, we expect a pronounced divergence in market volatility during the second half of 2026. Our team expects U.S. turbulence will be trend-directional, driven by the fluctuation of Fed tightening expectations, while Canadian market stress is expected to reflect ‘second hand’ volatility from a lack of supportive domestic growth fundamentals and the increased likelihood of steady and stable policy for 2026 (as the Bank of Canada recently suggested).
Against this seemingly "stable" backdrop, markets are currently pricing in a 70% probability of domestic rate hiking by the end of the year. It remains to be seen if the Federal Reserve’s hawkish stance will eventually push the Bank of Canada into a defensive stance to maintain credibility and cap the yield spread.
Looking ahead, we expect a pronounced divergence in market volatility during the second half of 2026.
Both the Federal Government and the Bank of Canada have stressed the need for Canada to commit to a restructuring of the domestic economy to reflect the new geo-political trade picture. And they have attempted to keep the focus at the macro level and on the development and completion of major infrastructure projects. A key consideration in this space is the fact that persistent inflation is always one of the biggest external threats to the launch and financing of key such infrastructure projects, the kind of which would support Canada's return to a 2.5% to 3.0% growth trajectory. If a comprehensive macro-level retooling of the Canadian economy is the ultimate goal, managing these rising and unanchored inflationary pressures may take priority over addressing sluggish growth.
The ongoing CUSMA background noise is now put to bed for 2026, but one of the consequences of the results of the renegotiations is the probable creation of recurring annual friction. Might this continue to cause firms to hesitate? Or may they be forced to become comfortable executing investment intentions within this ‘new normal’? Improved sentiment in central bank business outlook surveys suggest the latter. The reality will play a large part in influencing future growth.
We anticipate a flattening of the U.S. yield curve as Kevin Warsh's Fed make credibility the number one consideration. Canada will likely track this trajectory despite lacking independent domestic triggers. While high national deficits require central banks to intensely protect their bond market credibility and "hold in" the curve via rate policy, Canada has recently benefited from tight credit spreads and robust foreign interest for Canadian-denominated debt - and we expect this to continue.
Persistent inflation is always one of the biggest external threats to the launch and financing of key infrastructure projects.
U.S.
10-year benchmark rate
Canada
10-year benchmark rate
Bill Kellett, MD & Head of Foreign Exchange
ATB Cormark Capital Markets
Early-year USD weakness vanished in March, as an aggressive U.S. dollar rebound was triggered by the conflict in the Middle East, prompting immediate concerns over global crude accessibility and rising inflation. Responding to weak Canadian economic data, divergence in Canada-U.S. interest rate spreads, and the shift toward a hawkish Fed, USD/CAD broke through the 1.3700 level, and traded to a high of 1.4248 in late June/early July.
For corporate hedgers, negative forward points driven by widening interest rate spreads have rendered longer-dated protection expensive and less appealing to commercial USD sellers, despite higher spot rates. However, Canada has experienced improved short-term capital flows during the first half of 2026, and we continue to see a supportive environment on this front into the second half of the year. Institutional and corporate USD/CAD selling accelerated significantly once the pair crossed the 1.4100 level, led by active participation from the energy and metals sectors.
The second half of the year presents interesting forecasting risks heavily concentrated around the upcoming U.S. midterm elections and domestic political decisions on Crude distribution. Additionally, the structural gap between a dovish Bank of Canada and a hawkish Federal Reserve will continue to test currency ranges, but we have seen early signs of this risk abating. As realized currency volatility has remained deceptively low and market positioning is heavily crowded into a ‘weaker Canada’ narrative, unhedged USD/CAD sellers are exposed to a rapid downward correction in USD/CAD.
In a downside scenario where the annual CUSMA review sparks trade tensions and regional political friction intensifies, USD/CAD could be pushed higher toward the 1.4300 to 1.4500 range. Conversely, in an upside scenario where regional political risks quickly dissolve, Canadian economic growth beats expectations, and the cross-border interest rate differential narrows, the loonie could rally, pushing USD/CAD back toward 1.3800 and potentially as low as 1.3500.
Downside scenario
Upside scenario
Over the long term, a gradual shift away from global reliance on the U.S. dollar continues to support a long-term bearish USD outlook, driven by central banks rotating reserves into gold and the steady rise of non-dollar payment networks.
Dan Noble, MD
Commodity Sales
ATB Cormark Capital Markets
Aldo Goncalves, MD
Metals Commodity Derivatives
ATB Cormark Capital Markets
Dan Noble, MD, Commodity Sales
ATB Cormark Capital Markets
Aldo Goncalves, MD, Metals Commodity Derivatives
ATB Cormark Capital Markets
The conflict in the Middle East delivered a massive shock to the physical oil market in the first half of the year, disrupting up to 15 million barrels per day (bpd) as key transit routes in the Strait of Hormuz closed. While Saudi Arabia’s East-West Crude Oil Pipeline partially mitigated the impact, conflicting rhetoric from the U.S. administration regarding the conflict’s duration versus what has actually transpired has caused low predictability to persist, leaving, by some estimates, 70 million barrels of crude supply waiting to exit the Persian Gulf as of late June.
Financial markets, with reasoning based on the quick resolution we saw of the previous conflicts in the last 18 months, mispriced the potential duration of the current conflict and the severity of the Iranian reaction, not to mention their ability to absorb physical damage without changing ideology or course. Early in the current conflict, buyers who were short contracted deliveries were at times forced to pay upwards of $175/bbl for Brent cargoes. Brent futures meanwhile, topped out around $120/bbl, a $55 discount for an implied 4-8 week delivery delay.
Domestically, limited egress pipeline capacity kept Western Canadian Select (WCS) at a $14 to $15 discount to WTI. Meanwhile, Alberta natural gas was treated as a discounted byproduct as many producers drill for high-value liquids-rich gas, pushing new associated dry gas into an already fully supplied market.
Looking to the remainder of 2026, the heavy inventory depletion of 500 to 900 million barrels of crude has created a need for strategic and commercial replenishment, establishing a potential structural price floor near $60 for WTI. Historically low inventories at the Cushing storage hub and the U.S. Strategic Petroleum Reserve will require a narrowing WTI-Brent spread to incentivize the retention of domestically produced barrels and the import of barrels for storage replenishment.
Once the conflict in the Middle East eases, there is the potential to revert to previous prevailing supply-and-demand balances (with roughly 2 to 3 million bpd of excess capacity), allowing global storage facilities to refill more economically over an 18-month period than implied by crisis oil prices of the last 4 months. A reversion to normal-course hedging by producers, using dollar-cost averaging techniques, will allow predictable revenue forecasting at levels better than those prevailing pre-crisis.
Renewed investment may be attracted back to the sector as the market observes an incremental increase in confidence and stability regarding Canadian energy policy. Recent federal and interprovincial announcements signal a shift toward fast-tracking infrastructure projects, which could support renewed investor confidence in Canadian energy should these projects move forward.
In the metals space, silver is currently navigating its sixth consecutive annual structural deficit. Given that the majority of mined silver produced is a byproduct of gold, copper and zinc mining, supply remains highly inelastic. Concurrently, industrial demand is accelerating rapidly, driven by AI data centers, advanced electronics, solar infrastructure and electric vehicles. While the long-term outlook for gold remains bullish, the market will face choppy, oscillating near-term conditions, rising real interest rates and shifting Treasury yields will increase the opportunity cost for investors.
Doug Fremont, Director, Environmental Products
ATB Cormark Capital Markets
A pronounced disconnect persists in the Canadian environmental markets, where Alberta technology innovation and emissions reduction (TIER) credit prices languish in the $30 to $35 per tonne range, despite actual 2026 government compliance obligations setting a headline price of $95 per tonne.
This suppressed pricing is driven by a massive ~40 million-tonne inventory surplus. This overhang is largely held by financially resilient oil and gas firms at zero book value, anchoring the oversupply. This has been further compounded by small emitters who are below compliance benchmarks opting to remain in the TIER market to generate and sell Emission Performance Credits (EPCs) while those above benchmark have opted out, sustaining supply while erasing expected market demand.
While annual industry benchmarks continue to tighten gradually alongside historical decarbonization trends, the implementation of increased regulatory stringency measures has been deferred until 2030. The market anticipates a flat, headline-driven price trajectory for carbon credits through the remainder of 2026. Any fundamental shifts in supply are unlikely in the near-term. However, any policy announcements regarding post-2030 price floors will be the primary driver of a price rally.
This suppressed pricing is driven by a massive
~40 million-tonne
inventory surplus.
Long-term, aligning carbon-reduction initiatives with major pipeline approvals provides a sense of social licensing required for infrastructure development. Building this carbon capture infrastructure creates an enduring strategic asset for Western Canada, safeguarding the competitiveness of energy exports, developing valuable expertise in the CCUS space, and attracting future carbon-intensive industries to a low-emissions jurisdiction.
As Canadian corporate management teams navigate the back half of 2026, the temptation to wait out the volatility or try to time the perfect market entry point will be incredibly strong. Yet, in an era defined by economic divergence, geopolitical supply shocks and policy uncertainty, attempting to predict the market is risky.
The most resilient organizations will be those that prioritize operational predictability over speculative timing. By locking in long-term funding, layering FX hedges and opportunistically managing commodity and carbon exposures, corporate management teams can transform macroeconomic friction into a distinct competitive advantage.
About ATB Cormark Capital Markets
ATB Cormark Capital Markets is a leading North American investment firm providing holistic corporate and capital markets advice and full-service financial solutions. Following the acquisition of Cormark Securities Inc., the firm has further expanded its institutional reach, offering a premier research franchise and deep expertise in equity sales and trading. Serving clients across key growth sectors including energy, technology, mining and life sciences, ATB Cormark Capital Markets provides a comprehensive suite of services, including investment and corporate banking, risk management, and market-leading institutional insights.
The information is intended for use by persons resident in Canada only, and is not an offer, recommendation, or solicitation to buy or sell any security. ATB Cormark Capital Markets is a trademark brand name of ATB Financial and is used in connection with various financial services such as investment banking, capital markets and wholesale banking activities carried on by ATB Financial or certain of its subsidiaries including ATB Capital Markets Corp. ATB Capital Markets Corp. is a member of the Canadian Investor Protection Fund and is registered with the Canadian Investment Regulatory Organization and applicable securities regulatory authorities in the provinces that it conducts business, and a member of Canadian marketplaces. ATB Capital Markets USA Inc. and Cormark Securities (USA) Ltd. are registered with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority and Member Securities Investor Protection Corporation.
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