On Wednesday, for the second time in a row, the Bank of Canada cut interest rates. In a clear shift to a more dovish (less aggressive) stance, the bank stated that it is now equally concerned about the negative impact of higher interest rates on the Canadian economy as it is about fighting inflation. This is a clear signal from the bank that more cuts are coming. In fact, the bank all but said so with Governor Macklem stating, “The expected direction of our policy rate is lower, but we’re not on a predetermined path.
Surprisingly, the cut and the comments had little impact on the Canadian dollar, which has recently been pushing up against the 1.38 range and trading at its weakest levels since April. This is mostly due to the fact that the market had already priced in this cut. Additionally, as some analysts have indicated, the fact that most central banks are now in a monetary policy easing cycle has muted the impact of the two BoC rate cuts on the Canadian dollar, at least in the short term.
What could push the Canadian dollar lower past its current resistance level of 1.38? Stronger-than-expected GDP numbers or higher-than-expected inflation readings south of the border. The US GDP number is expected out on Thursday morning, and the latest PCE Price Index data is expected to be released on Friday. If either number surprises to the upside or if they both come in hotter than expected, we could see the USD/CAD break through the 1.38 resistance level.
The Canadian dollar is currently trading at 1.3790 CAD against the US Dollar.
