Canadian Dollar Weakens Against USD Amid Market Volatility

Market Drivers of Loonie Weakness

The Canadian dollar lost ground against the US dollar, with the greenback making significant gains this week. Analysts at Scotiabank highlighted the correlation between loonie weakness and spreads, attributing it to lower Canadian yields following soft CPI data and rising US rates.

Bank of Canada Rate Cut Speculations

Weaker-than-expected Canadian data sparked bets on a Bank of Canada rate cut in April, contrasting with hawkish Fed minutes from the US. Scotiabank analysts also observed a reduced correlation between the CAD and stocks, despite a market rally in equities.

Future Outlook for the Canadian Dollar

Wells Fargo analysts foresee a subdued performance for the loonie in the near future, citing similar growth and monetary policy outlooks for Canada and the US. They predict a cumulative 100 bps rate cut by the Bank of Canada by 2024, with the loonie trading at 1.3300 by the end of that year.

Economic Data Impact

Next week’s focus will be on Canadian December and Q4 GDP figures, while the US will release Consumer Confidence, Q4 GDP revisions, and January PCE data. Scotiabank’s week ahead model suggests a trading range of 1.3610/1.3390 for the CAD/USD pair with 75% confidence.