Canadian dollar could 'crater' if Bank of Canada cuts faster and deeper than the Fed, say economists
The Canadian dollar could be in for a rough ride if the Bank of Canada cuts interest rates sooner and deeper than the Federal Reserve, a scenario that economists suggest is becoming increasingly likely as the U.S. economy continues to outperform.
In a sign of what could come, the loonie fell more than a half per cent against the U.S. dollar in the wake of the Bank of Canada’s interest rate announcement last Wednesday, during which governor Tiff Macklem said a cut at the June rate meeting was now “within the realm of possibilities.”
That put the weakened loonie in the crosshairs of a stronger American currency and the Bank of Canada possibly at the mercy of a Federal Reserve that appears in no rush to start cutting.
“Pushing out Fed rate cuts makes it more difficult for the Bank of Canada to ease without causing CAD (the Canadian dollar) to crater,” Derek Holt, vice-president and head of capital markets economics at Bank of Nova Scotia, said in note to investors following the interest rate announcement.
“If there is one thing one needs to understand about Canada … it is very much the fact that it is not fully independent of the United States. Nor is the Bank of Canada fully independent of the Fed,” Holt said.
This year has not been kind to the loonie. So far, it is down slightly more than four per cent from mid-December, when it topped out at almost 76 cents US, and is currently at its lowest level since November.
“The Canadian dollar’s lacklustre performance against the U.S. dollar has been a notable curiosity in 2024, particularly given the recent spike in oil prices,” Stefane Marion and Kyle Dahms, economists at National Bank, said in an April note on the currency.
The pair are calling for the loonie to fall to 71
Read more on financialpost.com
