The Bank of Canada’s rate decision on Wednesday caused a steep drop for the CAD/USD instrument. There’s good news today for those who are holding the loonie.

USD/CAD has dropped to nearly 1.35 at the close of business Wednesday, which would have been a low point for the year so far, but a reversal has kept the loonie from staying down. The downturn happened as a result of the rate decision from the Bank of Canada, which some investors are calling another step in a line of bad financial decisions focused on core inflation and wages. It could lead to an underperforming economy when the year is settled.

Moves like these could keep the Canadian loonie lagging behind the US dollar. The Bank of Canada is obviously trying to lift up a flagging economy, but it remains to be seen if the rate decision is the right move.

Will the Canadian Economy Grow This Year?

The Bank of Canada forecasted 0.8% GDP growth for 2024, and that comes on the tail of two quarters of no growth from the economy. This marks the beginning of a recession, some analysts say, and they expect the numbers to get worse for a while long before they improve.

One of the key indicators to watch here is consumer spending. Where are Canadian dollars going? If the consumers do not believe in the growth of their economy, that will reflect on the spending. They will be holding onto their dollars tighter and waiting for better days.

RBC (Royal Bank of the Caribbean) has a more optimistic outlook. They noticed spending increases around the recent holidays and even though there is a slow period now, they expect interest rate cuts by the middle of the year. However, the CAD/USD instrument is down for the month. The slight upturn over the last two days is no indicator that the overall trend will change. It is more likely a correction from the recent steep drop.

At this rate, if the Canadian dollar does improve, it will likely take a while for that to happen and for it to get above where it started for the year and stay there.