The Canadian dollar (CAD), often referred to as the "loonie," is currently facing downward pressure amid expectations of rate cuts from the Bank of Canada (BoC) and ongoing volatility in oil prices. Analysts note that the loonie has weakened against its major rivals due to a significant interest rate divergence following the BoC's recent decision to cut the key policy rate to 3%. This move has prompted investors to shift towards higher-yield assets in the U.S., contributing to the CAD's recent decline.
Recent data points highlight the challenges facing the Canadian economy, with Canada's trade deficit widening unexpectedly in August. This increase was driven by a sharp decline in exports, which compounded existing investor uncertainties regarding trade policies. A recent meeting between Canadian Prime Minister Mark Carney and U.S. President Donald Trump yielded little in terms of concrete commitments, leaving trade policy uncertainty to linger, further frustrating CAD market sentiment.
Moreover, oil price volatility is a key factor significantly influencing the CAD's performance. On October 9, the loonie fell to a near six-month low against the U.S. dollar, breaking the crucial 1.40 threshold, partially attributed to safe-haven demand for the U.S. dollar and a decline in oil prices to approximately $61.43 per barrel. This drop, coupled with oil trading at 90-day lows, has led to increased scrutiny of CAD movements, as the Canadian economy heavily relies on oil exports.
In currency market action, the CAD is currently trading at 90-day lows against the USD around 0.7119, which is 1.5% below its three-month average. It has recently fluctuated in a narrow range, demonstrating stability compared to earlier periods. The EUR/CAD pair is also reflecting weakness at 0.6113, while the CAD is similarly down against the GBP and trading at 90-day lows near 0.5312. While the CAD/JPY has held relatively steady around 107.5, its performance is still being closely monitored amid market changes.
Looking ahead, the upcoming employment report for September, which is expected to show employment growth at a modest 5,000 new jobs, may further influence CAD performance. The unemployment rate is projected to rise slightly, adding to the potential for a more cautious outlook. Analysts and market participants will be watching for additional economic indicators and oil price movements, as these will remain critical in shaping the trajectory of the Canadian dollar in the coming weeks.
