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.
Internationally, this week’s measures by the People’s Bank of China to lower lending costs by 50 basis points and reduce capital reserve requirements for domestic banks have continued to inject optimism into stock markets. China, a major commodities importer, directly influences Canada’s economy as a leading exporter. Any stimulus for China’s sluggish economy benefits the Canadian dollar. Rising oil prices, driven by the escalating conflict in the Middle East, are also supporting the CAD.
Despite these factors, economists attribute the Canadian dollar’s rise more to a broadly weakening U.S. dollar than inherent CAD strength. Expect the USD/CAD pair to continue incremental declines (CAD gains) throughout the week.
The Canadian dollar is currently trading at 1.3467 CAD against the US Dollar.
