Raevon Bourque

The Canadian Dollar recently surged, reaching its best level in a week against the US Dollar. The increase in value came after the release of the latest US inflation data, indicating a slower-than-expected increase for October. The data revealed that inflation remained flat, defying expectations of a 0.1% increase, and showed a drop in the annualized inflation number from 3.7% in September to 3.2% in October. This cooling of inflation has led markets to anticipate an end to the Federal Reserve’s rate hikes, with expectations now leaning towards a rate cut. In fact, the market is pricing in approximately 53 basis points of cuts from the Fed by July.

The Canadian dollar has been fluctuating with market sentiment. The Canadian dollar (Loonie) began the week on a stronger note following the Federal Reserve’s decision to keep rates unchanged, with Chairman Powell’s remarks being interpreted as less hawkish than expected. However, the sentiment shifted when Federal Reserve officials indicated that the battle against inflation was far from over, leading to the Loonie losing ground to the US dollar. Oil prices fell sharply on Wednesday, reaching a four-month low, driven by weak economic data from China and Europe, which further contributed to the decline of the Canadian dollar. This morning, the Loonie is slightly up, by approximately a quarter of a penny, as oil prices have seen a modest recovery.

The Canadian dollar is once again losing ground against the US dollar this morning, following a brief respite that saw it hitting a two-week high (USD/CAD low) on Monday. Once again, interest rates have surged to the forefront, acting as the primary driver for the USD/CAD currency pair dynamics.

Over the past few weeks, the Canadian dollar has lost significant value when compared to the US dollar. Below are the primary reasons for this decline:

The Canadian dollar continues to be pummeled by broader global economic factors, namely a surprisingly resilient US economy and higher government bond yields. This has resulted in the USD/CAD hitting multi-week lows this week.