The Canadian dollar is at risk of falling to lows only seen during big economic shocks as forces once again line up against the currency, according to economists.
The Bank of Canada cut its interest rate by half a percentage point this month, widening the gap between it and the United States Federal Reserve, which puts pressure on the loonie. The Fed made its own large cut in September, but the resilience of America’s economy since then has led to speculation that it won’t ease as much as expected.
The Canadian economy shows no signs of momentum, suggesting more rate cuts are to come.
The current 125-basis-point spread between the two policy rates is the widest it’s been in at least two decades, and it could widen in months to come, putting more pressure on the Canadian dollar. Recent cuts to immigration targets by Ottawa could cool inflation, especially in housing, and slow growth, pushing the Bank of Canada to cut rates even further.
The U.S. election, with tariffs promised by Republican candidate Donald Trump and potential friction with Canada’s biggest trading partner, would not bode well for the economy or the loonie.
Source: Financial Post
