Daily Updates

The Canadian dollar is once again losing ground against the US dollar this morning, following a brief respite that saw it hitting a two-week high (USD/CAD low) on Monday. Once again, interest rates have surged to the forefront, acting as the primary driver for the USD/CAD currency pair dynamics.

As we discussed in our previous post, the market perceived the Fed’s recent comments as less hawkish, implying a reduced likelihood of further tightening. This interpretation suggests that the Fed might be unofficially shifting towards a more dovish stance, favoring the maintenance of current rates. This perception has rejuvenated risk assets, including global equity markets and the Canadian dollar. In essence, stable interest rates imply that long-term bond yields will decrease, making riskier assets a more attractive investment opportunity.

Over the past few weeks, the Canadian dollar has lost significant value when compared to the US dollar. Below are the primary reasons for this decline:

The Canadian dollar has been treading water against the US dollar after descending to a 2 ½ year low. Action in the USD/CAD pairing has been muted both overnight and into the morning, with investors on the edge of their seats awaiting the Fed’s rate decision. While there’s widespread agreement among Fed enthusiasts that a pause is on the cards, intrigue lies in the post-announcement statement and press conference. All ears will be tuned in to see if Fed Chair Powell gives the ‘rate hikes are not off the table’ declaration a bit more oomph than usual.

After staging a brief recovery against the USD on Monday, the Canadian dollar is once again losing traction against the US dollar on Tuesday morning. Also of note, the Canadian government’s 10-year bond yields have declined by 3.6 basis points, settling at 3.997%. In line with U.S. government benchmark debt which dipped to 4.8498%.

The Canadian dollar continues to be pummeled by broader global economic factors, namely a surprisingly resilient US economy and higher government bond yields. This has resulted in the USD/CAD hitting multi-week lows this week.

The Canadian dollar continued its downward trend on Tuesday morning, slipping to just under 1.3740 (USD/CAD). This latest slide was due to Canadian government 10-year bond yields rising by 1.1 basis points to 4.024%.

This morning, the critical Canadian inflation number was reported at 3.8 percent, coming in below the projected 4 percent. Given that inflation is among the most delayed of economic indicators and considering the overarching trend of a weakening Canadian economy, it seems unlikely that the Bank of Canada will raise rates in the upcoming week, and it appears that the BoC has now hit its terminal rate.

On Thursday, the Canadian dollar faced significant downward pressure following the release of the US Consumer Price Index (CPI). The report recorded inflation levels that were higher and more persistent than the already adjusted upward expectations of investors. This strengthens the notion that the US Federal Reserve might either persist with its rate hikes or keep them at high levels for a prolonged duration, especially when benchmarked against most other developed economies. In general, higher interest rates in the U.S. amplify the attractiveness of the U.S. dollar to international investors, making it more enticing relative to other assets, including the Canadian dollar.