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.
Read More
The Canadian dollar continued its slide against the US dollar from Tuesday overnight into Wednesday morning, hitting a new one-month low. So far in 2024, the Canadian dollar has lost 3 ½ cents against the US dollar. However, it’s important to note that the Canadian dollar has actually held steady or even gained against most other major currencies. The slide in the USD/CAD price is largely attributed to broad US dollar strength, which, in turn, is being driven by the ongoing challenge of reducing inflation back to the coveted 2% target desired by most central banks.
According to a Statistics Canada report released on Tuesday, the Canadian Consumer Price Index (CPI) increased to an annual rate of 3.4 percent in December, up from 3.1 percent in November. Higher-than-expected inflation has been a common theme worldwide in January. Recent comments from European Central Bank officials, indicating that they do not anticipate rate cuts until late 2024, if at all, combined with last week’s higher-than-expected U.S. inflation figures, have moderated global expectations for lower interest rates. This development has been a significant factor driving investors towards the safety of the U.S. dollar, leading to its broad strengthening so far in 2024. This trend is evident in both the U.S. dollar index and the USD/CAD pairing, which have reached new monthly highs (corresponding to CAD/USD lows).
The Canadian dollar stabilized on Friday, gaining slightly against the USD, but it lost ground over the week against most major currencies, including the US dollar. Thursday’s higher-than-expected US consumer price index (CPI) number, a key indicator of inflation, along with the US-led coalition attack on Houthi bases, have put investors in a defensive position and contributed to the already negative market sentiment.
Index (CPI) showed inflation edging higher, reversing a trend of rapid deceleration seen in 2023. The CPI increased to 3.4% compared to November’s 3.1%, serving as a rude reminder to investors that the last mile in the fight to lower inflation to the Fed’s target of 2% is still ongoing. Perhaps more importantly, it gives the edge to the Fed in the game of chicken that has the markets betting big on rate cuts, while central banks continue signaling that rates may stay elevated for the foreseeable future.
The Canadian dollar was stable on Wednesday, reflecting the overall trend in most financial markets as investors eagerly await Thursday’s crucial US CPI inflation data. After experiencing a surge towards the end of 2023, the Canadian dollar has since lost 1.25 percent against the US Dollar, primarily due to the broad strength of the US dollar.
On Tuesday, Canada’s November International Merchandise Trade Balance reported lower figures month-over-month, and Canada’s Building Permits also fell more than expected in November. Combined with crumbling oil prices, these factors have clipped the loonie’s wings.
Global equity markets stabilized Thursday morning after a rocky first two trading days of 2024. The shaky start was a result of a sell-off in technology stocks, following the waning hype over artificial intelligence and the realization of AI’s limited ability to deliver profits quickly. This, along with the release of the latest Fed meeting minutes showing a strong bias towards keeping rates restrictive for the foreseeable future, moved investors into a risk-averse posture. This has pushed the US dollar higher broadly against most currencies.
The US Dollar has started 2024 with a bang, hitting a weekly high against the Canadian Dollar on Tuesday morning. The US Dollar was experiencing broad gains, with the Dollar Index – a measure of the U.S. currency against six major currencies – up by 0.67% at 102.05, marking the biggest daily percentage gain since October.
The Canadian dollar has been bouncing between the 1.31 and 1.32 range on thin holiday volume trading. With a lack of economic news scheduled for this week and markets in holiday mode, oil prices and geopolitical news related to the conflict in the Middle East have been the primary drivers for the USD/CAD pairing.