News and Updates

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.

A flurry of positive economic developments globally has helped change global market sentiment, leading to a more optimistic outlook and lifting equity markets so far this week. On Monday, data from China showed lending has stabilized and perhaps even rebounded, which is a positive sign as Chinese authorities continue to take steps to turn the world’s second-largest economy around. Additionally, there is growing evidence to suggest that the Fed is beginning to take a more dovish (less aggressive) stance towards future rate hikes south of the border. This theory was further supported by Treasury Secretary Yellen’s comments this past weekend, expressing confidence that inflation can be contained without pushing the US economy into recession. All of this has resulted in broad weakness in the US dollar and a rally for risk-based assets such as the Canadian dollar.

After a post-pandemic economic boom and a persistently strong economy, it appears that the party is over, at least in Canada. A historic round of interest rate hikes is finally taking its toll, cooling demand while allowing supply to catch up. On Friday, Statistics Canada announced that Canada’s economy unexpectedly contracted in the second quarter at an annualized rate of 0.2%.