FX.co ★ Canadian Dollar Eases from 16-Month Highs

The Canadian dollar has reverted to approximately 1.355 against the US dollar, failing to maintain its position at sixteen-month highs. This shift comes as indicators of slowing domestic growth, coupled with renewed strength in the US dollar, have negated part of its January surge. Recently, Canadian reports indicated a stagnant GDP in November, with the goods-producing sector experiencing its third contraction in four months, particularly impacted by a continued downturn in manufacturing. This highlights fragile underlying economic momentum, as gains in services offer only limited compensation. Consequently, expectations have solidified that the Bank of Canada can afford to maintain a cautious stance rather than adopt more restrictive measures. This perspective was reinforced in its recent decision to keep interest rates steady, emphasizing a reliance on data dependency and acknowledging the presence of lingering excess capacity in its forward guidance. Additionally, the decline was exacerbated by an increase in the US dollar, following political and trade developments that boosted demand for USD liquidity.