Posthaste: What the Bank of Canada's second jumbo rate cut means for the Canadian dollar
You might have thought the Bank of Canada‘s latest interest rate cut — a second consecutive 50-basis-point whopper — would have sent the loonie plunging, but you were wrong if you did.
In the immediate aftermath of the widely expected cut, the Canadian dollar firmed up by about a half of a U.S. cent, on the reasoning that it looks like the Bank of Canada could take a slower approach to future rate cuts and might even make some previously unexpected pauses.
“Bad news is, to a significant degree, already priced into the exchange rate, and traders have been bracing for a widening in the gap between U.S. policy rates and their Canadian equivalents for months,” Karl Schamotta, chief market strategist at Corpay Currency Research, said in a note following the Bank of Canada’s decision to slice its borrowing rate to 3.25 per cent from 3.75 per cent.
Economist David Rosenberg also weighed in.
“The loonie seems to think the (Bank of Canada) may pause as it has rallied in the aftermath of the move,” the founder of Rosenberg Research & Associates Inc. said in a note on Wednesday.
Derek Holt, vice-president and head of capital markets economics at the Bank of Nova Scotia, said in a note, the Canadian dollar was “among the strongest currencies on the day,” based on the Bank of Canada telegraphing uncertainty around future rate cuts.
The Canadian dollar has had a tough year versus its counterpart in the United States.
The loonie is down 6.5 per cent on the year, hovering just above 70 cents U.S., after starting the 2024 at nearly 75.5 cents U.S.
A variety of factors have pushed it down, including the ongoing strength in the U.S. economy and, more recently, a threat by Donald Trump that he would impose a 25 per cent tariff on all goods
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