On Thursday, the US dollar continued its recent decline against most major currencies, hitting a two-month low against the Canadian dollar. This followed a day of significant economic news on both sides of the border on Wednesday.
In the US, the much-anticipated US CPI report was released, showing annual headline inflation dropping from 6% to 5% over the past month. Despite core inflation remaining stubbornly stable, experts believe that the significant drop in headline inflation will eventually translate into the core readings, albeit at a slower pace. Overall, the CPI report is seen as further cementing the Federal Reserve’s next steps, with a highly anticipated rate increase next month, followed by a pause.
Also on Wednesday, the Bank of Canada maintained the policy rate of 4.25% for the second time in a row. The Bank of Canada has been very clear that they want to assess the impact of their previous rate hikes on the Canadian economy before making any changes. The bank also indicated in their Monetary Policy report that they projected Canadian inflation to drop to around 3% by the middle of 2023 and then reach their target goal of 2% by the end of 2024.
The combination of cooling employment reports, moderating inflation, and a reduced chance of a severe economic slowdown all bode well for the Canadian dollar versus the United States dollar, and we expect further gains for the Canadian dollar in the short term. US dollar sellers need to be opportunistic while US dollar buyers should be ready to pull the trigger.
The Canadian Dollar is currently trading at 1.3348 against the US dollar.