As of Wednesday morning, the Canadian dollar has lost about 1 ½ cents against the US dollar after reaching a three-week high at the end of last week, following disappointing job numbers in the US. Last week’s weaker-than-expected US job figures and subsequent comments by Fed Chair Powell have quashed any likelihood of an additional interest rate hike south of the border, thereby eliminating the worst-case scenario for the CAD where the BoC is cutting rates while the Fed is hiking.
Nevertheless, the US dollar still holds an interest rate advantage, as the Fed is expected to remain in a long-term holding pattern while the Bank of Canada (BoC) is anticipated to begin cutting rates relatively soon. This rate differential is consistent across most G10 countries and continues to attract investor inflows to the US dollar, which benefits from higher interest rates.
Markets are currently estimating nearly a 70% chance that the Bank of Canada will start cutting rates at its next meeting on June 5th. The most aggressive forecasts do not expect the Fed to cut rates until the end of this year, if at all. This Friday’s release of Canadian jobs data and the upcoming Canadian inflation data, set to be released in late May, will be closely monitored to assess the BoC’s next steps.
The Canadian dollar is currently trading at 1.3720 CAD against the US Dollar.
