When it rains, it pours, and that is certainly the case for the Canadian economy and the Canadian dollar this week. Bad news is piling on, pushing the USD/CAD above 1.38 for the first time in 14 weeks.

On Wednesday, for the second time in a row, the Bank of Canada cut interest rates. In a clear shift to a more dovish (less aggressive) stance, the bank stated that it is now equally concerned about the negative impact of higher interest rates on the Canadian economy as it is about fighting inflation. This is a clear signal from the bank that more cuts are coming. In fact, the bank all but said so with Governor Macklem stating, “The expected direction of our policy rate is lower, but we’re not on a predetermined path.”

The USD/CAD pair jumped to the 1.3750 range on Friday after the release of weaker-than-expected Canadian Retail Sales numbers, a barometer of the state of the Canadian consumer. This contrasts with the better-than-expected retail sales report from the US Commerce Department on Tuesday, once again stoking fears about the potential of widening interest rate differentials between Canada and the US.

The Canadian dollar slipped to a two-week low against the US dollar on Tuesday as investors reacted to diverging economic data from Canada and the US. On the Canadian side, Statistics Canada released the latest annual inflation rate, which came in at 2.7 percent compared to the expected 2.8 percent. South of the border, US data showed stronger-than-expected retail sales numbers, suggesting that the US consumer is adjusting well to the high-interest-rate environment.