Global equity markets stabilized Thursday morning after a rocky first two trading days of 2024. The shaky start was a result of a sell-off in technology stocks, following the waning hype over artificial intelligence and the realization of AI’s limited ability to deliver profits quickly. This, along with the release of the latest Fed meeting minutes showing a strong bias towards keeping rates restrictive for the foreseeable future, moved investors into a risk-averse posture. This has pushed the US dollar higher broadly against most currencies.
The USD/CAD pair has steadied at a 2-week high (CAD/USD low). Interestingly, according to BMO analysts, what we are seeing is not Canadian Dollar weakness, but more about US Dollar strength. The Canadian dollar is actually outperforming most other G10 currencies. Currently, the Fed and the market are playing a game of chicken, with investors pushing for rate cuts and the Fed managing expectations about how and when the rates will be cut. Any news, such as this morning’s USD-based ADP jobs numbers that support a strong US economy, will fuel broad US Dollar strength, while any news indicating a clear path back to the Fed’s targeted inflation rate of 2% will weaken the US dollar.
We view the current weakness in the Canadian dollar as temporary and a great opportunity for US dollar sellers to step in and lock in trades above the 1.32 range. We continue to see the Canadian dollar gaining against the US dollar over the course of 2024.
The Canadian dollar is currently trading at 1.3356 CAD against the US Dollar.
