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The Canadian Dollar weakened against the US Dollar on Thursday, extending its recent consolidation phase. A lack of significant economic data releases from Canada left the Loonie vulnerable to market shifts.
USD/CAD traded near multi-year highs, hovering around the 1.4400 level. While US Retail Sales and Initial Jobless Claims showed some moderation, the overall impact on market sentiment was limited.
Crumbling Oil Prices Add to Loonie’s Woes
Declining crude oil prices further weighed on the Canadian Dollar. Expectations of a potential halt to attacks on shipping containers by the Houthis contributed to the downward pressure on oil prices. This negatively impacted the commodity-linked Canadian currency.
BoC’s Gravelle Signals Gradual End to Quantitative Tightening
Bank of Canada Deputy Governor Toni Gravelle indicated that the central bank expects to conclude its quantitative tightening program in the first half of 2025. However, Gravelle emphasized that this does not signify a return to active asset purchases to stimulate the economy, as seen during the pandemic. The BoC will instead gradually resume normal-course asset purchases.
Inflation Concerns and US Tariff Threats Looming
The Reuters poll of economists predicts the Bank of Canada will cut interest rates by 25 basis points to 3.00% on January 29th. However, uncertainty surrounding potential US tariffs on Canadian exports and the subsequent economic and inflationary impacts pose significant challenges for the central bank.
Looking Ahead
The upcoming release of Canadian Consumer Price Index (CPI) inflation figures next week will be closely watched by market participants. This data will provide crucial insights into the trajectory of inflation and potentially influence the Bank of Canada’s future monetary policy decisions.
In summary, the Canadian Dollar continues to struggle against the US Dollar amid a dearth of significant economic data and increasing headwinds from falling oil prices and the potential impact of US tariffs. While the Bank of Canada is expected to ease monetary policy further, the outlook remains uncertain due to the complex interplay of economic and geopolitical factors.
