The Canadian dollar is weakening against the US dollar, driven by a combination of factors including weaker domestic growth signals, falling oil prices, and renewed US dollar strength. Economic indicators point to softening Canadian momentum, with manufacturing weakness and muted inflation pressure. These domestic pressures are compounded by external factors such as sliding oil prices and a firmer US dollar due to speculation around future Federal Reserve policy.
- The Canadian dollar weakened past 1.36 per US dollar, retreating from sixteen-month highs.
- Canadian GDP was flat in November.
- Goods-producing industries contracted for a third time in four months, led by manufacturing weakness.
- Expectations that the BoC can remain patient have increased due to muted inflation pressure and labor market slack.
- Oil prices slid toward the low $60s per barrel.
- Kevin Warsh’s nomination as Federal Reserve chair lifted demand for USD liquidity.
- The USD/CAD pair is gathering strength, nearing 1.3690.
- Financial markets are pricing in nearly a 90% odds that the Fed will hold interest rates steady at its March policy meeting.
The confluence of these factors suggests a challenging environment for the Canadian dollar. Domestic economic headwinds, coupled with external pressures from commodity prices and US monetary policy expectations, are contributing to its depreciation. This could signal a period of continued weakness for the Canadian dollar as investors react to these converging forces.