The Canadian Dollar (CAD) remained under pressure against the U.S. Dollar (USD) on Monday, with USD/CAD trading near 1.3808 at the time of writing. The pair advanced even as the Greenback slipped against most major counterparts, as markets continue to digest last week’s rate cuts by both the Federal Reserve (Fed) and the Bank of Canada (BoC).
Crude Oil prices extended their decline at the start of the week, with West Texas Intermediate (WTI) sliding toward $61.50 per barrel. As a key energy exporter, Canada’s currency is particularly sensitive to Oil price movements, and falling prices often weigh on the Loonie.
BoC eases further amid softening conditions
The BoC lowered its overnight rate by 25 basis points to 2.50% last week, marking its eighth cut since the policy rate peaked at 5.25% in September 2023. The decision underscores the depth of the Bank’s easing cycle in response to slowing growth and cooling inflation.
According to the Bank’s Monetary Policy Statement, three developments have shifted the risk outlook since July: a weaker labor market, diminished underlying inflation pressures, and the removal of most retaliatory tariffs, which reduced upside inflation risks.
Governor Tiff Macklem said the Bank stands ready to cut further “if risks rise.” Analysts at major Canadian banks, including TD and CIBC, forecast at least one more reduction before year-end. Overnight index swaps suggest roughly a 40% chance of another cut in October and around a 75% probability by December, according to Reuters.
Fed remains cautious despite cut
The Fed also cut rates by 25 basis points last week, but Chair Jerome Powell maintained a cautious stance, stressing that future policy moves will depend on incoming data. The updated dot plot signaled the likelihood of two additional reductions by year-end, aligning with expectations for a gradual approach.
Speaking to the Wall Street Journal on Monday, Atlanta Fed President Raphael Bostic downplayed the need for further cuts in the near term, noting he anticipates only one reduction in 2025. He described the policy environment as one of the most challenging in recent years, with risks on both sides: inflation could resurface if easing goes too far, while labor market weakness poses downside risks to growth. Bostic also emphasized that he does not view the labor market as being in crisis.
