The Canadian dollar was stable on Wednesday, reflecting the overall trend in most financial markets as investors eagerly await Thursday’s crucial US CPI inflation data. After experiencing a surge towards the end of 2023, the Canadian dollar has since lost 1.25 percent against the US Dollar, primarily due to the broad strength of the US dollar.
Several factors are influencing this trend. Firstly, equity markets have normalized following the recent cooling of AI hysteria. Secondly, there is an increasing divergence between market expectations and the Federal Reserve’s (and, to a certain extent, the Bank of Canada’s) signals regarding impending interest rate cuts. This discrepancy has left investors uncertain and apprehensive, thereby increasing the appeal of the relatively safer US dollar.
Additionally, the uncertainty about the extent of interest rate cuts, both in Canada and the United States, is negatively impacting the Canadian dollar. The Canadian economy, being more vulnerable to the effects of higher interest rates, faces the risk of further strain.
From a technical standpoint, the Canadian dollar is expected to fluctuate within a range of 1.345 to 1.3220 in the short term.
The Canadian dollar is currently trading at 1.3378 CAD against the US Dollar.
