The Canadian dollar briefly touched its weakest level since April 19, falling to 1.3760 on Tuesday following the release of weaker-than-expected GDP numbers. Canada’s gross domestic product (GDP) increased by 0.2 percent in February, according to Statistics Canada, falling short of analyst estimates of 0.3 percent.
This, coupled with firmer-than-anticipated inflation numbers from the U.S. in the first three months of the year, has set the Bank of Canada and the Federal Reserve on diverging paths. The Federal Reserve, which is widely expected to maintain its benchmark federal-funds rate steady at its highest level in more than two decades (between 5 and 5.25%), has sent strong signals over the past few months that it is willing to keep rates higher for longer.
Meanwhile, the Bank of Canada, faced with a sluggish economy and a more rate-sensitive consumer base, is likely to begin cutting rates sooner than the Federal Reserve. Money markets are speculating that there is a 60 percent chance the BoC will begin cutting rates as soon as June. The more significant the interest rate differential between Canadian and U.S. economies, the weaker the Canadian dollar will become.
The Canadian dollar is currently trading at 1.3771 CAD against the US Dollar.
