USD/CAD has found support around 1.3450 as the Bank of Canada is anticipated to announce its third consecutive rate cut this week, according to DBS’ Senior FX Strategist Philip Wee.
Wee predicts that on September 4, the overnight lending rate will decrease by another 25 bps to 4.25%. In July, CPI core trimmed inflation dropped to 2.7% YoY, the lowest level since April 2021, staying within the official 1-3% target range.
Additionally, on September 6, it is expected that the August unemployment rate will continue to rise to 6.5%, reaching its highest level since January 2022. The Trudeau government has taken measures to protect Canadian jobs by reducing the share of low-wage temporary foreign workers that employers can hire to 10% of their workforce, effective September 26.
Despite the challenging economic environment, Canada’s GDP growth has shown resilience, with a third-quarter acceleration to an annualized 2.1% QoQ saar in 2Q24, surpassing the consensus of 1.8%. The first-quarter growth was also revised upwards to 1.8% from 1.7%. This positive growth trend has led to speculation about the Bank of Canada potentially pausing its rate cuts.
Analysis:
The Bank of Canada’s decision to pause after three consecutive rate cuts could have significant implications for the USD/CAD exchange rate and the Canadian economy. Investors should closely monitor the central bank’s announcements and economic indicators to make informed decisions about their investments.