After a post-pandemic economic boom and a persistently strong economy, it appears that the party is over, at least in Canada. A historic round of interest rate hikes is finally taking its toll, cooling demand while allowing supply to catch up. On Friday, Statistics Canada announced that Canada’s economy unexpectedly contracted in the second quarter at an annualized rate of 0.2%.
Another factor weighing on the Canadian dollar is the sputtering Chinese economy. Canada is a major producer of commodities, and as a result, the Canadian dollar is more susceptible to fluctuations in global economic activity.
In comparison, the US economy is holding up relatively better. This morning, US weekly unemployment claims came in at their lowest levels since February.
What investors are speculating is that the Bank of Canada (BoC) is further along the interest rate cycle and that it is unlikely to raise rates, or perhaps even consider cutting rates, sooner than the Federal Reserve. The implications for the price of the Canadian dollar versus the US dollar are that the Canadian dollar will likely continue to trade at weaker levels for the rest of 2023. According to a Reuters poll released this morning, the Canadian dollar should rebound to about the 1.32-1.324 range against the USD by early 2024.