The Canadian Dollar (CAD) extends its decline against the US Dollar (USD) on Thursday, with USD/CAD climbing above the 1.4000 psychological mark to reach its highest level since April 10. At the time of writing, the pair is trading around 1.4019 during the American session, up nearly 0.45% on the day, as the Greenback retains a firm bid across the FX board.
The decline in the Loonie comes amid renewed demand for the Greenback following political upheaval in France and Japan, which has prompted traders to rotate out of the Euro (EUR) and the Japanese Yen (JPY).
The USD’s advance, however, appears driven more by portfolio flows than fundamental strength, as the broader outlook for the Greenback remains tilted to the downside amid the prolonged United States (US) government shutdown and growing expectations that the Federal Reserve (Fed) will cut rates twice more this year to cushion labor market weakness despite lingering inflation pressures.
Meanwhile, weaker Crude Oil prices are adding to downward pressure on the Loonie, with West Texas Intermediate (WTI) crude hovering near $61.50 per barrel, down over 0.50% on the day. As Canada’s top export, falling Crude prices often translate into softer demand for the CAD.
On the monetary policy front, markets widely expect the Bank of Canada (BoC) to cut its policy rate by another 25 basis points at its upcoming meeting on October 29, after lowering it to 2.50% last month to counter slowing growth, easing inflation pressures, and weakening labor market conditions.
Economists expect the BoC’s benchmark rate to reach 2.25% by year-end, with officials keeping policy flexible and open to further cuts if growth and employment data continue to soften.
Looking ahead, Friday’s Canadian labor market data will be closely watched for near-term direction. The Unemployment Rate is expected to tick higher to 7.2% in September from 7.1%, with a modest Net Employment gain of 5,000 following August’s sharp 65,500 decline. A weaker-than-expected report could reinforce expectations of further BoC easing later this month, while an upside surprise may provide brief support for the Loonie.