Canadian Dollar Spikes Versus USD on Tough Talk from BoC

The Canadian dollar has jumped a full cent from Wednesday to Thursday as markets reevaluate the Bank of Canada and Federal Reserve Bank’s respective stances. The market prediction late last year and into January 2024 was that the Canadian economy was on the brink of a downturn and that Canadian consumers, being as stretched as they are, would blink first, leading the BoC to take the lead over the Federal Reserve Bank in initiating the cycle of interest rate cuts. However, over the last month, the storyline has begun to flip, with Wednesday’s comments by both banks further highlighting this change. Fed Chairman Powell indicated that the Fed was planning on cutting rates as long as inflation continued its downward trend. This was the type of speech that was expected from Bank of Canada Governor Tiff Macklem. But the BoC Governor’s speech surprised analysts with its hawkish tone, in which he stated, “underlying inflation pressures persist,” indicating ongoing concerns about inflation.

In the end, most market analysts are still predicting a stronger Canadian dollar starting in the second half of 2024 and anticipate the BoC to start cutting rates sometime in June. However, the comments by the central banks yesterday have, for the first time, opened the possibility that the Bank of Canada may not be leading the way with interest rate cuts and have allowed the USD/CAD to break out of its latest trading range. The downside is that if you are a US dollar seller, you may have missed your prime window of opportunity.

The Canadian dollar is currently trading at 1.3479 CAD against the US Dollar.