The Canadian dollar is slowly climbing its way back up from its recent multi-month lows against the US Dollar. The Canadian dollar had fallen to 1.3614, its lowest level (CAD/USD highs) against the US Dollar since early December of 2023. In early Tuesday morning trading, the CAD was up by a quarter of a penny and overall had gained back half a penny since it hit its lowest level above-mentioned 3-month lows.
The Canadian dollar lost approximately ¾ of a penny against the US dollar this morning after Statistics Canada announced that on an annual basis, inflation dropped to 2.8 percent in February. This latest Consumer Price Index inflation reading was lower than what markets had expected.
The Canadian dollar has jumped a full cent from Wednesday to Thursday as markets reevaluate the Bank of Canada and Federal Reserve Bank’s respective stances. The market prediction late last year and into January 2024 was that the Canadian economy was on the brink of a downturn and that Canadian consumers, being as stretched as they are, would blink first, leading the BoC to take the lead over the Federal Reserve Bank in initiating the cycle of interest rate cuts. However, over the last month, the storyline has begun to flip, with Wednesday’s comments by both banks further highlighting this change. Fed Chairman Powell indicated that the Fed was planning on cutting rates as long as inflation continued its downward trend. This was the type of speech that was expected from Bank of Canada Governor Tiff Macklem. But the BoC Governor’s speech surprised analysts with its hawkish tone, in which he stated, “underlying inflation pressures persist,” indicating ongoing concerns about inflation.
The Canadian dollar experienced significant declines in December of last year, as economic data pointed to a weakening economy and overstretched consumers. In contrast, the US economy and consumers seemed to be adjusting well to higher interest rates, evidenced by a steady stream of strong economic data. Based on this, analysts had expected the Bank of Canada to begin the cycle of interest rate cuts sooner than the Federal Reserve. However, over the last month, initial indications of a slowing US economy have begun to emerge. Tuesday’s US ISM Services Purchasing Managers Index (PMI) and US Factory Orders were the latest examples of softer than expected economic news from the US. This has led market watchers to speculate that the Fed, like the Bank of Canada, may also need to cut rates sooner than initially anticipated.
