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The Canadian dollar weakened to an 11-week low against its U.S. counterpart on Wednesday after the Bank of Canada implemented a larger-than-usual interest rate cut, while the U.S. dollar extended its recent large gains. USDCAD rose 0.15%, closing at $1.3837.
(USDCAD Daily Price Chart, Source: Trading View)
The Bank of Canada lowered its benchmark rate by 50 basis points to 3.75%, as anticipated, and highlighted signs that Canada is returning to a low-inflation environment. This was the first rate cut of this magnitude in 15 years, excluding pandemic-related adjustments, and it brings the total easing since June to 125 basis points.
(Bank of Canada Overnight Rate, Source: Forex Factory)
Key indicators including real GDP, the labor market, and inflation are all pointing to a weaker outlook than the Bank of Canada had previously forecasted. Consumer prices in Canada slowed to 1.6% last month, falling below the BoC’s 1% to 3% target range, with the midpoint being 2%. GDP grew at a modest 0.2% rate in July, and a preliminary estimate suggests that growth likely stalled in August.
Additionally, investors are speculating that the policy rate could be reduced below the upper bound of the 2.25%-3.25% neutral range as early as January.
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