The Canadian dollar (CAD) has faced substantial challenges in 2024, weakening by approximately 5% against the U.S. dollar (USD). This year marks the lowest point for the USD/CAD pair since 2020, and current trends indicate more downside may be lurking in the shadows. Here’s a breakdown of the factors haunting the Canadian dollar and keeping the USD strong.
The Canadian dollar (CAD) has experienced significant fluctuations throughout 2024, shaped by both domestic and international economic developments. As we move into the final quarter of the year, the CAD is grappling with a complex mix of factors ranging from domestic economic data to global market movements. This update will review the key catalysts that have influenced the CAD so far and provide an outlook for what traders and investors can expect in the coming months.
The Canadian dollar is trading around the 1.3650 mark, hitting multi-week lows against the U.S. dollar. Overall, the Canadian dollar has weakened by two full cents over the past two weeks.
The USD/CAD pair continues to trend modestly lower, with the Canadian dollar moving higher after recovering from its dip into the low 1.34 range last week, the lowest level seen since early March. This movement is primarily driven by broad weakness in the U.S. dollar rather than a surge in Canadian dollar strength, as global events send mixed signals.
The Canadian dollar is relatively stable in early Wednesday morning trading, after slipping into the 1.345 range yesterday. Bank of Canada Governor Tiff Macklem continued to express confidence in the Bank’s ability to bring inflation back to its 2% target. His comments, unsurprisingly, were interpreted as dovish by market watchers. The BoC’s next policy interest rate decision is set for October 23, according to Reuters money markets predicting a 60% chance of a 50-basis-point cut, double the usual 25-basis-point reduction. A further 25-basis-point cut is expected in December.
Global markets are on the upswing this morning after China’s central bank announced a package of measures designed to kick-start China’s sluggish economy. Most notably, the People’s Bank of China said it would cut its benchmark interest rates and lower the cash reserve requirement for banks to spur more lending. This, combined with last week’s 50 basis point interest rate cut by the Federal Reserve in the U.S., has injected more optimism into global markets.
With the U.S. Federal Reserve kicking off its latest rate-cutting cycle with an aggressive half-point cut, the ripple effects are likely to be felt across global markets. For the Canadian dollar, the impact could be substantial, as shifts in interest rates and economic sentiment may weigh heavily on the currency’s future performance.
So, there you have it—it’s official! After more than four years, the U.S. Federal Reserve has kicked off its rate-cutting cycle with an ‘outsized’ half-point or 50 basis point cut. That was the easy part. The challenges ahead are significant, as the Fed now seeks to prevent its previous rate hikes from pushing the economy, particularly the labor market, into negative territory. If it moves too quickly, it risks eroding the hard-won gains it has made against inflation. However, if it moves too slowly, it risks tipping the labor market into the red. The Fed is stuck between the proverbial rock and a hard place.
The Canadian dollar gained about 0.25 of a cent against the U.S. dollar on Wednesday morning, breaking through the 1.36 threshold after hitting its lowest level against the USD since August on Tuesday. Recently, the focus has been on the path the Federal Reserve (Fed) will take regarding interest rate reductions. Until last week, there was rampant speculation that the Fed might adopt a much more aggressive approach. However, Wednesday morning’s U.S. inflation data was mixed: while annual inflation dropped to 2.5% (down from 2.9%), core monthly inflation, which excludes food and energy costs, rose 0.3% in July.
The Canadian dollar has remained relatively stable this week, with only slight softening as markets search for direction. Bank of Canada (BoC) Governor Tiff Macklem spoke in London on Tuesday but refrained from providing any clear insights on the BoC’s interest rate trajectory or the possibility of a 50-basis-point rate cut. This left market participants looking to other events, such as the upcoming U.S. presidential debates, which could influence market sentiment.
