What’s going on here?
The Canadian dollar hit an eight-month low, trading at 1.3835 per US dollar after slipping for eight consecutive days amid falling oil prices and recent interest rate cuts by the Bank of Canada.
What does this mean?
The CAD’s 0.1% decline against the USD extends its longest losing streak since December 2018. This drop is fueled by a 1.4% decrease in WTI crude oil prices, settling at $77.16 per barrel due to declining Chinese demand and a potential Gaza ceasefire. The Bank of Canada’s recent 25 basis point cut to its benchmark interest rate – the second in as many months – has pivoted towards economic stimulus. This shift has further dampened the CAD, as bond yields across the Canadian curve fell in response to similar movements in US Treasuries, driven by modest US price increases in June.
Why should I care?
For markets: Oil and interest rates weigh heavy.
Lower oil prices and aggressive rate cuts by the Bank of Canada continue to pressure the CAD, signaling potential short-term volatility. Investors are closely watching the exchange rate at the 1.3846 level, which has acted as a resistance point recently. With Canadian bond yields falling and US economic data supporting potential Federal Reserve rate cuts, markets anticipate continued CAD weakness. Analysts predict a 70% chance of another rate cut by the BoC in September, suggesting more downward pressure on the CAD in the near future.
The bigger picture: A shift in monetary priorities.
The Bank of Canada’s strategic shift from inflation control to economic stimulation marks a significant policy change. With oil prices dropping due to global economic factors like reduced demand from China, Canada’s major export revenues are hit hard. As bond yields decline and investors price in further rate cuts, Canada is navigating a delicate balance between stimulating its economy and managing inflation. This broader economic strategy will have profound effects not only on the CAD but also on Canada’s overall economic health in the months to come.
