Investing.com – The dollar lost ground against its U.S. counterpart today, while the U.S. dollar gained about a third of a percent against the Canadian dollar over the week.
Analysts Scotiabank (TSX:) Note that market reasons for the Canadian dollar’s weakness this week include a stronger correlation with spreads at a time when spreads are working against the Canadian dollar.
“Over the last week or so, spreads have moved against the Canadian dollar, reflecting slightly lower Canadian bond yields following softer-than-expected CPI data in Canada as well as rate hikes in the US.”
Canadian data this week was cooler than expected, suggesting the Bank of Canada will cut interest rates as early as April. Meanwhile, in June, the US Federal Reserve came out with hawkish rhetoric and Fed minutes.
Scotiabank analysts also noted that there was “some weakening in the Canadian dollar’s relationship with equities” last week, with market gains in equities failing to provide significant support to the Canadian dollar.
Looking to the future of the Canadian dollar, Wells Fargo Co. (NYSE:) Analysts expect the Canadian dollar’s muted performance to be “a trend that could continue for some time.” They note that “given the broadly similar growth and monetary policy outlooks in Canada and the US, it is possible that the loonie could underperform over the medium term.”
Wells Fargo expects a cumulative 100 bps rate cut from the Bank of Canada. in 2024, compared to a cumulative 125 bps rate cut by the Federal Reserve. for the same period. They forecast trade at 1.3300 by the end of 2024, with the Canadian currency seeing only modest gains.
Next week, the couple’s attention will be focused on Canada’s GDP for December and the fourth quarter. Meanwhile, US data will include consumer confidence, fourth-quarter GDP revisions and PCE data for January.
Scotiabank’s model for next week “suggests spot could trade between 1.3610/1.3390 with 75% confidence.”