When it rains, it pours, and that is certainly the case for the Canadian economy and the Canadian dollar this week. Bad news is piling on, pushing the USD/CAD above 1.38 for the first time in 14 weeks.
After the rate cut yesterday, the Bank of Canada also updated its growth forecast, and the picture was not pretty. The BoC now expects 2024 GDP to grow by 1.2% for the year, compared to April’s forecast of 1.5%, which was already modest. The BoC also anticipated 2024’s first-quarter growth to come in at 1.7% on an annualized basis, significantly lower than the previously forecasted 2.8%. Anemic economic growth is yet further evidence that the bank may need to do more to spur economic growth in Canada.
Also weighing on the Canadian dollar is negative economic news out of China that shows economic growth has slowed and is putting in doubt the much-anticipated recovery, helping to weaken commodity prices and, more specifically, oil prices globally. China is a major importer of global commodities, much of it from Canada. Less global demand for oil and other commodities is bad for the Canadian dollar.
Put all this together, and you get a Canadian dollar that looks very vulnerable in the short term. Even if the BoC continues to cut rates, there will be a lag before the effects are felt. Analysts are calling for the Canadian dollar to weaken to the 1.40 range by the end of the year.
The Canadian dollar is currently trading at 1.3821 CAD against the US Dollar.
