FX.co ★ Canadian Dollar Eases Past 1.4 USD

The Canadian dollar briefly surged past the 1.40 mark against the US dollar following the approval of the budget by Parliament. However, this temporary boost quickly dissipated as the fundamental factors influencing the Canadian dollar remained unchanged. Inflation cooled to 2.2% in October, weakening the argument for a continuously tight monetary policy by the Bank of Canada. This situation diminishes Canada's carry advantage, now that the policy rate stands at 2.25%. Additionally, domestic economic activity appears sluggish, evidenced by a significant 17% drop in housing starts in October. This suggests a lack of economic growth to raise Canadian yields in comparison to the United States. Meanwhile, the commodity market has proven unstable, with oil prices fluctuating due to inventory data and profit-taking, thus removing a consistent external bid for the currency. Moreover, changes in Federal Reserve rate cut expectations and instances of stronger US interest rates have allowed the US dollar to recover when yields move unfavorably for Canada. Consequently, the rally driven by initial relief lacked the momentum to support a sustained strengthening of the Canadian dollar.