The Canadian dollar looks through the cut of rates and the rate

Article content

The Canadian dollar increased after the Bank of Canada announced its seventh cuts of consecutive rates, since investors seemed to review the latest movements of political leaders.

Article content

Article content

On Wednesday, the Canadian dollar increased 0.43 percent to 69.6 cents in the United States after the Canada Bank reduced its rate at 25 basic points to 2.75 percent.

The last time the rate was this minimum was in 2022, when the Bank of Canada was in the middle of a hiking campaign that would end with rates that exceed five percent in July 2023. At that time, the Canadian dollar quoted in the range of 76 cents to 77 cents.

Article content

“In fact, the currency market has been less reactive to news in recent times, partly because investors have seen rates of rates quickly reversed or delayed, and because opinions on the economy of the United States have also become less positive,” he said in a less positive note, “he said in a note.

“That change in view of the perspective of the United States makes today’s tariff cut in Canada seems less out of tune with the place where the Fed policy could be directed, although further in the year,” he said.

The divergent rates between the Canada Bank and the United States Federal Reserve have left Loonie vulnerable to losses as investors floated with the highest indebtedness rates of their US counterpart.

This advantage seems to have evaporated at the moment, with the US dollar index, a measure of the backback force against a basket of other important currencies, now 5.95 percent from a maximum of two and a half years at the beginning of the year.

Not long ago, markets expected Fed to maintain rates in the predictable future in a solid economic perspective, a resistant labor market and stubborn inflation.

Article content

Article content

The perspective of the United States economy has been grated from Donald Trump in full rate battle mode. In addition, US inflation data showed Wednesday showed a surprise cooling, giving the Fed some space to respond with rates cuts if the need arises.

The Bank of Canada, in its official statement on the tariff cut, said it would have to weigh the winds against a possible resurgence of inflation as tariffs increase prices.

Some economists have warned that the Loonie, weakened by lower rates, will be added to the risk of inflation as imports become more expensive due to tariffs.

“Although the Bank of Canada has focused on the labor market and inflation, it cannot rule out the risk of greater depreciation (Canadian dollar) caused by the differential of interest rates between the United States and Canada,” said Naoum Tabet, director of Investment Investments of Capital International Asset Management (Canada) Inc., in a note. “A weaker Canadian dollar for a longer period could see pressure on Canadian inflation.”

Article content

At the moment, markets have reduced their bets for future tariff cuts.

Even so, there are voices in the community of investors who think that tariffs will be won on inflation in the estimation of the Canada Bank, which makes more rates cuts likely.

“If we are right, then the probable result for rates is a more modern profile than the Bank of Canada, which implies additional flexibility in the coming months, a scenario that should cause a greater weakness of Loonie,” said Nick Rees, head of macro research at Monfx Pte Ltd., in a note.

• Email: gmvsuhanic@postmedia.com

Mark our website and support our journalism: Do not miss the business news you need to know: Add Financiast.com to your markers and register in our bulletins here.

Article content