The Canadian dollar attempted to muster a rebound against the US dollar overnight but quickly sputtered and gave up its modest gains after Canadian retail sales data for November registered weaker than expected on Friday morning.
Over the last 10 days, inflation in the US, UK, and Canada has come in higher than expected, forcing markets to come to terms with the growing likelihood that early 2024 rate cuts are no longer on the table, and that any cuts will more likely be in the second half of 2024. This has led to a more cautious, or less risk-averse, approach by global investors and has benefited risk-haven assets such as the US Dollar, while working to the detriment of riskier assets such as the Canadian dollar.
It should be noted that while the USD/CAD pairing has dropped significantly, it’s more a case of broad US dollar strength and less about Canadian dollar weakness, as the Canadian dollar has held its strength against most other major currencies. Geopolitical instability in the Red Sea, along with severe winter weather on the east coast, has pushed oil prices higher, helping support the Canadian dollar.
With the full suite of Canadian November economic data now fully accounted for, investors will be looking to next week’s Bank of Canada interest rate meeting. Most analysts expect the bank to stand pat but will be parsing the accompanying statement for any indication of the BoC’s path forward.
The Canadian dollar is currently trading at 1.3468 CAD against the US Dollar.
