The Bank of Canada (BoC) voted to keep interest rates unchanged on Wednesday, which came as no surprise to investors. The tone of the policy statement was slightly hawkish, indicating a readiness to increase rates if necessary. This aligns with the bank’s efforts to manage market expectations. The statement also indicated that the bank is still ‘concerned’ about inflation and ‘remains prepared’ to hike rates again if warranted, implying that all options are still on the table.

The Canadian dollar is lower Monday morning against the US Dollar after touching a 2-month high on Friday following the release of better-than-expected November jobs data. The weakening of the Canadian dollar appears to be based on a broad, risk-averse investor sentiment this morning after reports that a U.S. destroyer and three commercial ships operating in the Red Sea came under attack yesterday.

Friday morning has been more of the same for the Canadian dollar, which has been grinding out small gains against the US Dollar all week, based primarily on ever-growing expectations of interest rate cuts and optimism that the global economy is headed for a soft landing. Both interest rate cuts and avoiding a prolonged and deep recession would be beneficial to the Canadian economy and the Canadian dollar. The Canadian dollar also got a boost from OPEC talks about crude oil production

With Bank of Canada Governor Tiff Macklem suggesting that interest rates may have peaked, and Federal Reserve Bank of Atlanta President Raphael Bostic expressing more confidence in the continued decline of inflation over the next year, it appears we’ve turned a corner in the historic fight against inflation. So, how will the Canadian dollar fare against the US Dollar once the Bank of Canada (BoC) and other central banks in developed economies start to cut rates? How will the Canadian dollar perform against the USD in 2024?