The Canadian dollar experienced significant losses early in the week against the US dollar, following Tuesday’s lower-than-expected Canadian GDP figures and Federal Reserve Chairman Powell’s hawkish remarks on inflation progress on Wednesday. These events prompted some investors to speculate about the possibility of further rate hikes by the Fed, highlighting the potential major divergence in monetary policy and interest rate directions between the Bank of Canada and the Federal Reserve.
However, during a press conference, the Fed Chair firmly dismissed the notion of additional interest rate hikes, indicating that the current interest rates are sufficiently high to cool demand in the US. He also stated that the Fed is more likely to cut rates than to increase them in the future.
This clarification helped stabilize the USD/CAD currency pair, and the Canadian dollar gained three-quarters of a penny overnight into Thursday trading, compared to its lows on Wednesday.
Further support for the Canadian dollar came from comments made by the Bank of Canada Governor Tiff Macklem on Thursday morning. While speaking before the House of Commons Finance Committee, Governor Macklem noted that Canadian inflation is likely to remain close to 2.9% for the next several months, driven by rising gasoline prices. He also stated that more data would be required to confirm that the recent declines in Canadian inflation will be sustained, suggesting that an interest rate cut by the BoC may not be as imminent as markets are anticipating.
The Canadian dollar is currently trading at 1.3709 CAD against the US Dollar.
