The Canadian Dollar Strengthens Against the US Dollar
The Canadian dollar strengthened against its US counterpart on Friday (Dec 20) as investors cheered US inflation data, with the loonie paring its weekly decline after it was pressured by a more hawkish Federal Reserve and domestic political turmoil.
Market Analysis
The loonie was trading 0.3 per cent higher at 1.4350 to the US dollar, or 69.69 US cents, extending its recovery from the weakest intraday level in nearly five years at 1.4467 on Thursday.
For the week, the currency was down 0.8 per cent, its fourth straight weekly decline.
Expert Insight
“It’s been a hard week for the CAD,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.
“Strong US economic data and more hawkish-than-expected messaging from the Fed this week have supported broad gains in the US dollar and it’s hard seeing that trend reverse any time soon.”
Domestic Politics
On Wednesday, the Fed signalled that it would slow the pace of interest rate cuts. This followed the abrupt resignation on Monday of Canadian Finance Minister Chrystia Freeland.
“Freeland’s spectacular departure Monday raises clear question marks over PM Trudeau’s position and the stability of the government at a time when the threat of US tariffs requires strong leadership at home,” Osborne said.
Prime Minister Justin Trudeau looked set to lose power early next year after a key ally said he would move to bring down the minority Liberal government and trigger an election.
Economic Data
Wall Street’s main indexes jumped and the US dollar fell against a basket of major currencies on a smaller-than-expected increase in the US personal consumption expenditures (PCE) price index.
Data showed that Canadian retail sales grew by 0.6 per cent in October but a preliminary estimate for November was less upbeat, showing a flat reading.
Canadian bond yields fell across the curve, tracking moves in US Treasuries. The 10-year was down 7.8 basis points at 3.269 per cent.
Conclusion
The Canadian dollar has strengthened against the US dollar, paring its weekly decline after being pressured by a more hawkish Federal Reserve and domestic political turmoil. The loonie was trading 0.3 per cent higher at 1.4350 to the US dollar, or 69.69 US cents. The Canadian economy is expected to be impacted by the domestic political situation and the threat of US tariffs.
Frequently Asked Questions
Q: What was the reason for the Canadian dollar’s decline?
A: The Canadian dollar was pressured by a more hawkish Federal Reserve and domestic political turmoil, including the resignation of Canadian Finance Minister Chrystia Freeland.
Q: What was the impact on the Canadian economy?
A: The Canadian economy is expected to be impacted by the domestic political situation and the threat of US tariffs.
Q: What is the current trading level of the Canadian dollar?
A: The loonie was trading 0.3 per cent higher at 1.4350 to the US dollar, or 69.69 US cents.
Q: What is the outlook for the Canadian dollar?
A: The outlook for the Canadian dollar is uncertain due to the domestic political situation and the threat of US tariffs.
