The Canadian dollar gained about 0.25 of a cent against the U.S. dollar on Wednesday morning, breaking through the 1.36 threshold after hitting its lowest level against the USD since August on Tuesday. Recently, the focus has been on the path the Federal Reserve (Fed) will take regarding interest rate reductions. Until last week, there was rampant speculation that the Fed might adopt a much more aggressive approach. However, Wednesday morning’s U.S. inflation data was mixed: while annual inflation dropped to 2.5% (down from 2.9%), core monthly inflation, which excludes food and energy costs, rose 0.3% in July.
Similarly, last Friday, the U.S. Labor Department reported 140,000 new jobs for August—slightly below expectations of 161,000 but an improvement over the previous month’s figures. This lack of clear direction in U.S. economic data has dampened investor sentiment, prompting market participants to adopt a more cautious stance. With markets now betting that the Fed’s path forward may not be as straightforward as anticipated, the chances of an “outsized” (50 basis points) interest rate cut seem less likely, if not off the table entirely, keeping the BoC and Fed on a similar rate-cutting cycle trajectory.
Also helping to stabilize the Canadian dollar is the rebound in oil prices. Crude oil prices jumped 1.75% after hitting their lowest level since May 2023 on Tuesday, driven by concerns over potential supply disruptions due to Hurricane Francine in the U.S.
The Canadian dollar is currently trading at 1.3578 CAD against the US Dollar.
