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.
Bank of Canada’s Dovish Stance: A Real Fright
The Bank of Canada (BoC) has seen both growth and inflation cooling, creating an environment where it’s openly discussing the acceleration of its rate-cutting cycle—a trick or treat for the markets. This dovish stance contrasts sharply with the U.S. Federal Reserve’s cautious approach, spurring a steady outflow of investment from CAD as traders seek better returns elsewhere.
U.S. Growth Resilience and Fed Caution: No Signs of Slowing
U.S. economic resilience has been a notable theme this year, making the Fed hesitant to cut rates too soon. Consequently, it’s likely the Fed will pause rate hikes sooner but maintain its spell over the markets for longer, lending strength to the USD over CAD.
Oil Prices: The Canadian Dollar’s Ghostly Shadow
Oil prices, often a lifeline for Canada’s economy, have recently dropped. As oil prices stabilize or descend further, the CAD may struggle to regain its footing, like a character in a horror movie trapped in quicksand.
Trump Election Prospects and USD Strength: The Ghost of Policies Past
The market is factoring in a possible return of former President Donald Trump. His economic policies—like tax cuts and tariffs—could significantly strengthen the USD if re-enacted. A tax-cut boost would deliver a short-term sugar rush (think post-trick-or-treat candy binge) to the U.S. economy, while tariffs traditionally bring inflationary pressures, potentially leading the Fed to keep rates high for longer.
Where Does the CAD Go From Here?
With the Canadian dollar already facing multiple headwinds, its short-term outlook appears haunted by a series of challenging factors. As the BoC moves closer to rate cuts, oil prices continue to waver, and U.S. economic resilience and potential political shifts loom, the Canadian dollar may find itself wandering in a fog of uncertainty.
The Canadian dollar is currently trading at 1.3917 CAD against the US Dollar.
