Daily Updates

The Bank of Canada (BoC) voted to keep interest rates unchanged on Wednesday, which came as no surprise to investors. The tone of the policy statement was slightly hawkish, indicating a readiness to increase rates if necessary. This aligns with the bank’s efforts to manage market expectations. The statement also indicated that the bank is still ‘concerned’ about inflation and ‘remains prepared’ to hike rates again if warranted, implying that all options are still on the table.

The Canadian dollar is lower Monday morning against the US Dollar after touching a 2-month high on Friday following the release of better-than-expected November jobs data. The weakening of the Canadian dollar appears to be based on a broad, risk-averse investor sentiment this morning after reports that a U.S. destroyer and three commercial ships operating in the Red Sea came under attack yesterday.

Friday morning has been more of the same for the Canadian dollar, which has been grinding out small gains against the US Dollar all week, based primarily on ever-growing expectations of interest rate cuts and optimism that the global economy is headed for a soft landing. Both interest rate cuts and avoiding a prolonged and deep recession would be beneficial to the Canadian economy and the Canadian dollar. The Canadian dollar also got a boost from OPEC talks about crude oil production

With Bank of Canada Governor Tiff Macklem suggesting that interest rates may have peaked, and Federal Reserve Bank of Atlanta President Raphael Bostic expressing more confidence in the continued decline of inflation over the next year, it appears we’ve turned a corner in the historic fight against inflation. So, how will the Canadian dollar fare against the US Dollar once the Bank of Canada (BoC) and other central banks in developed economies start to cut rates? How will the Canadian dollar perform against the USD in 2024?

The Canadian dollar is making modest headway against the US dollar this morning. The Canadian dollar has been pushed up by higher crude oil prices and broad US dollar weakness as global markets continue to be buoyed by a more optimistic outlook.

Technical trading analysis shows the Canadian dollar encountering resistance at the 1.37 level and finding support at the 1.3620 level. This suggests that the Canadian dollar will fluctuate between 1.37 and 1.362 for most of this week. The next significant catalysts are expected later in the week with the release of Canadian GDP numbers and the US PCE inflation numbers for October, both due on Thursday.

Over the course of this week, the Canadian dollar-US dollar pairing has been directionless, operating on limited volumes due partly to mixed economic signals and the US Thanksgiving holiday on Thursday.
Early in the week, Statistics Canada released the Canadian CPI numbers, which showed that inflation had cooled slightly more than anticipated.

Market reaction has been muted to today’s Canadian CPI data, as the headline number came in close to expectations, offering little guidance to market watchers on the direction of interest rates. The Canadian dollar remained relatively weak, trading within a range of 72.78 cents US to 73 cents US, even after Statistics Canada’s CPI announcement. The report seems to add another nail, if not the final one, in the coffin of potential additional rate hikes. However, analysts caution that the Bank of Canada (BoC) is still far from considering rate cuts, with mid-2024 being the earliest anticipated date.

The Canadian Dollar recently surged, reaching its best level in a week against the US Dollar. The increase in value came after the release of the latest US inflation data, indicating a slower-than-expected increase for October. The data revealed that inflation remained flat, defying expectations of a 0.1% increase, and showed a drop in the annualized inflation number from 3.7% in September to 3.2% in October. This cooling of inflation has led markets to anticipate an end to the Federal Reserve’s rate hikes, with expectations now leaning towards a rate cut. In fact, the market is pricing in approximately 53 basis points of cuts from the Fed by July.

The Canadian dollar has been fluctuating with market sentiment. The Canadian dollar (Loonie) began the week on a stronger note following the Federal Reserve’s decision to keep rates unchanged, with Chairman Powell’s remarks being interpreted as less hawkish than expected. However, the sentiment shifted when Federal Reserve officials indicated that the battle against inflation was far from over, leading to the Loonie losing ground to the US dollar. Oil prices fell sharply on Wednesday, reaching a four-month low, driven by weak economic data from China and Europe, which further contributed to the decline of the Canadian dollar. This morning, the Loonie is slightly up, by approximately a quarter of a penny, as oil prices have seen a modest recovery.