FX.co ★ Canadian Dollar Gives Up Montly Highs

In September, the Canadian dollar fell, trading at over 1.375 per US dollar, following a decision by the Bank of Canada to lower its policy rate by 25 basis points, bringing it down to 2.5%. This action marked the start of a longer-term easing strategy in response to an unexpectedly sharp slowdown in economic activity. More specifically, the Canadian economy saw a 1.6% contraction in GDP during the second quarter, alongside a dramatic 27% decline in exports. Signs of deterioration in the labour market further justified the shift toward a more relaxed policy stance; there was an increase in net job losses and the unemployment rate rose to 7.1% as of August. These developments helped alleviate wage pressures and diminished the immediate concern around inflation. While consumer spending and the housing market have managed to stay relatively robust, the Bank's Governing Council expressed concerns that trade barriers and decelerating population growth could start to negatively impact private spending and employment. Given that headline inflation stands at approximately 1.9%, market participants believe there is sufficient flexibility to ease monetary policy without risking deviation from the 2% inflation target.