USDCAD Pushes Above 1.36 After BOC Macklem Comments

The Canadian dollar (CAD) has weakened in September, with USDCAD rising by over 1.5 cents from its August lows, surpassing 1.36 as the U.S. dollar strengthens and economic factors continue to pressure the CAD. This reflects a two-point gain from CAD’s previous lows. The Bank of Canada (BoC) has cut interest rates by 25 basis points for the third consecutive time and is still open to further easing. Governor Macklem hinted that if economic data continues to support it, the pace of monetary policy easing could accelerate.

USD/CAD surged above 1.39 by early August, by it couldn’t hold the gains above the resistance and the price reversed back down in a steep bearish move, falling more than 5 cents to 1.3430s. But MAs continue to hold as support, and this time it was the 100 SMA (green) which held the decline, with the price forming a hammer candlestick on the weekly chart, which is a bullish reversing signa. The following two weeks have been bullish, and the weakness in the Canadian economy have turned the Bank of Canada dovish, which will keep the CAD weak.

USD/CAD Chart Weekly – Bouncing Off the 100 SMA

Difficulties in the Canadian housing market due to massive immigration and the stagnation of the economy in the last two months have prompted the BoC to adopt a more dovish stance. With the market already pricing in another 0.25% rate cut at the October meeting, there’s a possibility of further adjustments if economic data deteriorates. There’s a high likelihood of at least one 50 bps rate cut before the year ends, so we should see two more 25 bps rate cuts from them.

Comments from the Bank of Canada Governor Macklem at the Canada-UK Chamber of Commerce

• Bigger cuts are possible if economy and CPI weaker
• Employment is not negative but is well below population growth
• Businesses are hiring much more slowly than people are entering the work force
• Youth unemployment has gone up a lot
• We have very high rates of immigration
• If we were to see a rise in unemployment, that would be a concern
• It’s reasonable to expect further rate cuts
• We want to see growth pickup as we get closer to the neutral rate
• We want to see growth pickup and that’s something that’s going to factor into our monetary policy decisions
• We expect wage growth to come into line with productivity. If that doesn’t happen, it could make inflation sticky
• If upside surprises materialize, we could slow the pace of normalization
• Monthly GDP in particular and jobs have been on the weak side and that’s a downside risk
• If downside risks materialize, it could be appropriate to take a bigger step
• Trade disruptions may mean larger deviations from our target

USD/CAD Live Chart