The Canadian dollar is trading around the 1.3650 mark, hitting multi-week lows against the U.S. dollar. Overall, the Canadian dollar has weakened by two full cents over the past two weeks.
This decline is the result of a combination of factors, including the market’s disappointment with recent economic stimulus from China and last week’s strong U.S. jobs report. The Chinese government recently announced a stimulus package aimed at stabilizing their economy, but it fell short of market expectations. Investors had anticipated more aggressive measures to boost domestic demand and fuel growth, which would have provided stronger support for commodity-driven currencies like the Canadian dollar. Since China is a major importer of Canadian commodities, any sign of underwhelming economic support from Beijing tends to weigh on the loonie.
Additionally, the robust U.S. employment numbers exceeded expectations. The U.S. economy added 254,000 jobs last month, significantly above the 150,000 forecast by economists, while the unemployment rate dropped to 4.1%. This development has almost eliminated the likelihood of another 50 basis-point rate cut, and instead, it has put a potential pause by the Federal Reserve on the radar.
This strengthens the U.S. dollar for two reasons: first, the Fed may now have the flexibility to lower interest rates at a slower pace, and second, it increases the chances of a smoother transition to a lower interest rate environment without damaging the U.S. economy—further enhancing the U.S. dollar’s appeal.
The Canadian dollar is currently trading at 1.3673 CAD against the US Dollar.
