The Canadian Dollar Weakens Amid Rate Cut Speculations
Market Analysts Predict a Rate Cut in June
The Canadian dollar has been performing poorly in comparison to other pro-cyclical currencies since the beginning of May due to its close ties to US economic data and Federal Reserve rate expectations. Analysts have been consistently forecasting a 25 basis point rate cut by the Bank of Canada in June, a stance that has remained unchanged for several months. This expected policy move is likely to reduce the attractiveness of the Canadian dollar relative to other commodity-linked currencies.
Job Growth Challenges Dovish Outlook
The proximity of inflation to the target has been a key argument supporting the possible rate cut in June. However, a significant increase in job creation in Canada in April has posed a challenge to the dovish perspective. The release of April’s Consumer Price Index (CPI) data in Canada today holds substantial importance as it could impact market expectations regarding the June interest rate decision. Analysts are particularly keen on whether the core CPI “trim” measure will align with the Bank of Canada’s preferred core inflation indicator, the “median,” falling below 3%. If all the essential inflation metrics, both core and headline, fall within the target range of 1-3%, it could complicate the rationale behind the Bank of Canada’s decision to maintain a tight monetary policy.
Market Underestimates Likelihood of Rate Cut
Market sentiment seems to be underestimating the possibility of a rate cut in June, with only an 11 basis point adjustment priced in. There is also speculation that the Canadian dollar could further weaken as the likelihood of a rate cut becomes more evident, leading to increased dovish positions on the Canadian interest rate curve. If inflation decreases as expected with today’s data, the currency pair might approach the 1.3700 level again in the short term. Currency pairs like and could also demonstrate the policy divergence more prominently.
This article has been crafted with care and reviewed by an attentive editor. For further details, please refer to our terms and conditions.
