The USD/CAD pair continues to trend modestly lower, with the Canadian dollar moving higher after recovering from its dip into the low 1.34 range last week, the lowest level seen since early March. This movement is primarily driven by broad weakness in the U.S. dollar rather than a surge in Canadian dollar strength, as global events send mixed signals.
The Federal Reserve’s (Fed) recent rate cuts and China’s newly announced measures to support its struggling property market have bolstered global risk sentiment. Typically, the U.S. dollar is seen as a safe-haven currency during times of uncertainty and slower growth. However, with anticipation of a global economic rebound, the U.S. dollar has been weakening as investors shift toward assets and currencies, such as the Canadian dollar, that benefit from positive growth outlooks. Yet, escalating tensions in the Middle East, particularly the possibility of an Israeli ground invasion into southern Lebanon, have dampened the full impact of this global optimism.
On the interest rate front, there is ongoing speculation about another 50-basis-point rate cut by the Fed in November, which would likely further weaken the U.S. dollar. The Bank of Canada (BoC) is also expected to follow with its own 50-basis-point cut after the Fed’s move. Typically, currencies from countries with more aggressive or deeper rate cuts tend to weaken. However, with markets anticipating parallel paths for both the BoC and the Fed, the effects on the USD/CAD exchange rate have largely offset each other.
Adding to the indecision in the markets is the looming U.S. election, now just 35 days away. Many market participants are reluctant to take large positions until there is more certainty around the election’s outcome.
Amidst these opposing forces, the Canadian dollar finds itself caught between mixed global pressures. While modest gains against the U.S. dollar are likely in the short to medium term, the broader trajectory will depend on post-election developments and global risk sentiment.
The Canadian dollar is currently trading at 1.3512 CAD against the US Dollar.
