The Canadian dollar is showing limited movement on Wednesday. In the European session, USD/CAD is trading at 1.3555 at the time of writing, down 0.08%.
BoC expected to cut for third consecutive time
All eyes are on the Bank of Canada, which will announce its rate decision later today. The BoC is expected to lower rates by 25 basis points for the third successive time, the most cuts by any major central bank. The BoC is expected to continue cutting rates for the remainder of the year and into 2025 in order to boost Canada’s listless economy.
The fact that the Federal Reserve is widely expected to lower rates at this month’s meeting and possibly later in the year makes it easier for the BoC to continue trimming rates without diverging too widely from the Fed. As well, the Canadian dollar gained 2.2% against the greenback in August, which means that the BoC doesn’t have to worry as much about downward pressure on the Canadian dollar due to rate cuts.
Investors are prepared for a rate cut today but will be looking for insights about the new cutting cycle. Inflation has abated and has hovered within the BoC’s target range of between 1% and 3% for seven straight months. As with the Federal Reserve, policy makers are shifting focus from inflation to the labor market, which has been weakening. The BoC is aiming for a soft landing in which inflation falls without the labor market crashing and the economy tipping into a recession.
US employment data key to Fed decision
The US releases a host of employment data for the remainder of the week, which will determine the size of the Fed’s expected rate cut. The probability of a quarter-point cut has fallen from 70% last week to 59%, with the likelihood of a half-point cut rising from 30% to 41%, according to CME’s FedWatch. Later today, the US releases JOLT job openings, which is expected to ease to 8.10 million, compared to 8.18 million in July.
USD/CAD Technical
- There is resistance at 1.3579 and 1.3607
- 1.3535 and 1.3507 are the next support levels
