News and Updates

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.

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.

On Wednesday, for the second time in a row, the Bank of Canada cut interest rates. In a clear shift to a more dovish (less aggressive) stance, the bank stated that it is now equally concerned about the negative impact of higher interest rates on the Canadian economy as it is about fighting inflation. This is a clear signal from the bank that more cuts are coming. In fact, the bank all but said so with Governor Macklem stating, “The expected direction of our policy rate is lower, but we’re not on a predetermined path.”