The Canadian dollar was stable on Wednesday, reflecting the overall trend in most financial markets as investors eagerly await Thursday’s crucial US CPI inflation data. After experiencing a surge towards the end of 2023, the Canadian dollar has since lost 1.25 percent against the US Dollar, primarily due to the broad strength of the US dollar.
On Tuesday, Canada’s November International Merchandise Trade Balance reported lower figures month-over-month, and Canada’s Building Permits also fell more than expected in November. Combined with crumbling oil prices, these factors have clipped the loonie’s wings.
Global equity markets stabilized Thursday morning after a rocky first two trading days of 2024. The shaky start was a result of a sell-off in technology stocks, following the waning hype over artificial intelligence and the realization of AI’s limited ability to deliver profits quickly. This, along with the release of the latest Fed meeting minutes showing a strong bias towards keeping rates restrictive for the foreseeable future, moved investors into a risk-averse posture. This has pushed the US dollar higher broadly against most currencies.
The US Dollar has started 2024 with a bang, hitting a weekly high against the Canadian Dollar on Tuesday morning. The US Dollar was experiencing broad gains, with the Dollar Index – a measure of the U.S. currency against six major currencies – up by 0.67% at 102.05, marking the biggest daily percentage gain since October.
The Canadian dollar has been bouncing between the 1.31 and 1.32 range on thin holiday volume trading. With a lack of economic news scheduled for this week and markets in holiday mode, oil prices and geopolitical news related to the conflict in the Middle East have been the primary drivers for the USD/CAD pairing.
The Canadian dollar is holding steady at around a four-and-a-half-month high against the US dollar on Wednesday morning. The Canadian dollar has gained over 5 cents since November and 2.5 cents in the last week against the US dollar.
The Canadian dollar cooled slightly and gave back some of its recent gains against the US Dollar, as well as most major currencies, on Monday. This shift occurred as investors consolidated their positions ahead of the final 2023 Canadian Consumer Price Index (CPI) announcement, expected to be released by Statistics Canada on Tuesday.
On Wednesday, the Federal Reserve held its benchmark federal funds rate steady for the third consecutive time. This effectively put the final nail in the coffin of this historic round of rate hikes, which saw rates go from near zero to the current range of between 5.25% and 5.5%, a 22-year high.
The Canadian dollar is a quarter of a penny lower against the US dollar on Tuesday morning, following US inflation data that came in slightly higher than expected. This development has dampened the mood of investors who had hoped for a lower inflation number to cement further rate cuts by the Federal Reserve (Fed) in 2024. Currently, the Fed has hinted at 50 basis points of cuts, while the market is expecting 100 basis points. Fewer cuts by the Fed mean a stronger US Dollar compared to the Canadian dollar.
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.
