FX.co ★ Canadian Dollar Rises to Monthly High

The Canadian dollar has appreciated beyond C$1.40 against the US dollar, nearing its monthly peak owing to several converging factors: narrowing interest rate differentials between the US and Canada, solid domestic economic fundamentals, and a weaker US dollar preceding the Bank of Canada’s policy announcement. The loonie has gained strength due to the general weakness of the US dollar, with markets anticipating a near-certain 25 basis point rate cut from both the Federal Reserve and the Bank of Canada. Despite a cumulative 275 basis point reduction from its 5% peak, Canada's rate outlook remains comparatively favorable. The current 2.25% policy rate still offers positive real yields against a 2.4% headline Consumer Price Index (CPI). Analysts predict that this week’s rate cut may likely signal the conclusion of the Bank of Canada’s easing cycle. It is expected that officials will adopt a neutral-to-hawkish stance to maintain credibility, given the mild inflationary pressures and a 7.1% unemployment rate. In addition, the resilience in crude and non-energy export prices is supporting Canada's external balance, thus enabling the Canadian dollar to outshine its counterparts as global central banks lean towards more accommodative monetary policies.