The Canadian dollar is trading around the 1.3650 mark, hitting multi-week lows against the U.S. dollar. Overall, the Canadian dollar has weakened by two full cents over the past two weeks.
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The USD/CAD pair continues to trend modestly lower, with the Canadian dollar moving higher after recovering from its dip into the low 1.34 range last week, the lowest level seen since early March. This movement is primarily driven by broad weakness in the U.S. dollar rather than a surge in Canadian dollar strength, as global events send mixed signals.
The Canadian dollar is relatively stable in early Wednesday morning trading, after slipping into the 1.345 range yesterday. Bank of Canada Governor Tiff Macklem continued to express confidence in the Bank’s ability to bring inflation back to its 2% target. His comments, unsurprisingly, were interpreted as dovish by market watchers. The BoC’s next policy interest rate decision is set for October 23, according to Reuters money markets predicting a 60% chance of a 50-basis-point cut, double the usual 25-basis-point reduction. A further 25-basis-point cut is expected in December.
Global markets are on the upswing this morning after China’s central bank announced a package of measures designed to kick-start China’s sluggish economy. Most notably, the People’s Bank of China said it would cut its benchmark interest rates and lower the cash reserve requirement for banks to spur more lending. This, combined with last week’s 50 basis point interest rate cut by the Federal Reserve in the U.S., has injected more optimism into global markets.
With the U.S. Federal Reserve kicking off its latest rate-cutting cycle with an aggressive half-point cut, the ripple effects are likely to be felt across global markets. For the Canadian dollar, the impact could be substantial, as shifts in interest rates and economic sentiment may weigh heavily on the currency’s future performance.
So, there you have it—it’s official! After more than four years, the U.S. Federal Reserve has kicked off its rate-cutting cycle with an ‘outsized’ half-point or 50 basis point cut. That was the easy part. The challenges ahead are significant, as the Fed now seeks to prevent its previous rate hikes from pushing the economy, particularly the labor market, into negative territory. If it moves too quickly, it risks eroding the hard-won gains it has made against inflation. However, if it moves too slowly, it risks tipping the labor market into the red. The Fed is stuck between the proverbial rock and a hard place.
The Canadian dollar gained about 0.25 of a cent against the U.S. dollar on Wednesday morning, breaking through the 1.36 threshold after hitting its lowest level against the USD since August on Tuesday. Recently, the focus has been on the path the Federal Reserve (Fed) will take regarding interest rate reductions. Until last week, there was rampant speculation that the Fed might adopt a much more aggressive approach. However, Wednesday morning’s U.S. inflation data was mixed: while annual inflation dropped to 2.5% (down from 2.9%), core monthly inflation, which excludes food and energy costs, rose 0.3% in July.
The Canadian dollar has remained relatively stable this week, with only slight softening as markets search for direction. Bank of Canada (BoC) Governor Tiff Macklem spoke in London on Tuesday but refrained from providing any clear insights on the BoC’s interest rate trajectory or the possibility of a 50-basis-point rate cut. This left market participants looking to other events, such as the upcoming U.S. presidential debates, which could influence market sentiment.
After gaining 4 cents in less than a month against the US Dollar, the Canadian dollar is now trading at its highest level since March of this year, and the Loonie might have more room to spread its wings. Over the last month and a half, what began as a trickle of softer-than-expected US economic reports has turned into a flood, significantly souring the outlook for the US economy. Fed Chair Powell acknowledged this during his speech in Jackson Hole, Wyoming, on Friday, stating that the Fed does “not seek or welcome further cooling in labor market conditions.” His comments sparked an eruption of joy in the markets, but most importantly for currency markets, they resulted in the US Dollar Index seeing its largest daily decline in nine months.
The time has come for policy to adjust.” With these eight words spoken on Friday at the Jackson Hole symposium, Fed Chair Powell signaled the end of the Fed’s historic inflation-fighting campaign. The market quickly reacted, with the Dow Jones Industrial Average adding more than 300 points (about 0.8%), and the Nasdaq Composite gaining 1.1%. Treasury yields slipped, and the US Dollar Index weakened to its lowest level since the beginning of the Fed’s rate-hiking cycle.