Canadian Dollar Weakens After BoC Cuts Rate, Ends QT

The Canadian Dollar declined 0.25% against the US Dollar on Wednesday following the Bank of Canada’s (BoC) decision to cut interest rates by another 25 basis points to 3%. This move, the third consecutive rate cut, comes after the BoC raised rates aggressively in 2023, reaching a peak of 5% in July.

The BoC also announced the end of its quantitative tightening program and signaled a potential return to asset purchases in early March. However, Governor Tiff Macklem emphasized that full-scale quantitative easing is not imminent. The looming threat of US tariffs is a significant factor influencing the BoC’s policy decisions.

Market Impact and Outlook

Despite the recent weakness, the Canadian Dollar remains within its recent trading range, keeping USD/CAD near the 1.4400 level. With the interest rate differential between Canada and the US expected to widen further, the Canadian Dollar’s upside potential is limited.

The BoC has acknowledged the Canadian Dollar’s multi-year lows against the US Dollar but has not yet taken significant policy action to address it. However, continued weakness could prompt further adjustments.

Technical Factors

USD/CAD has been trading sideways between 1.4300 and 1.4500 for over six weeks. While a break above 1.4500 is possible, a decline below the 50-day Exponential Moving Average (around 1.4270) could trigger a more significant bearish move.