FX.co ★ Canadian Dollar Nears One-Month Low

The Canadian dollar weakened toward 1.42 per USD on November 10th, approaching a one-month low amid expectations of a widening US-Canada interest rate differential. Stronger-than-expected US inflation data for October reinforced expectations of further Federal Reserve rate hikes, bolstering the greenback against the loonie on the prospect of increased carry trades into US assets.

At the same time, markets are also largely pricing in another Bank of Canada rate increase in response to persistent inflationary pressures. In Canada, annual inflation accelerated to 3.1% in September from 3.0% in August, its highest reading since May’s 3.2%. Rising prices are occurring alongside signs of economic recovery, with Q2 GDP expanding by 0.8%. In addition, the Democratic Party’s victory in the US mid-term elections is seen as potentially easing trade-related risks to Canadian growth.

However, the case for a more aggressive tightening path is being tempered by softer labor market data: employment fell by 4,700 in October, compared with expectations for a 13,600 increase. At its most recent meeting, the Bank of Canada raised its policy rate by 25 basis points to 2.5%, marking its first hike since 2023.