FX.co ★ Canadian Dollar Strengthens Amid Weaker USD

The Canadian dollar held steady around 1.40 against the USD, remaining near a one-month low of 1.398 reached on May 14th. This stabilization is largely due to the weakening of the US dollar, which offsets expectations of a dovish stance from the Bank of Canada. The recent downgrade of the United States' sovereign rating to Aa1 by Moody's on May 16th, combined with growing speculation that the Federal Reserve may soon start cutting interest rates as US inflation cools, has diminished the appeal of the greenback. However, the potential appreciation of the Canadian dollar is limited by expectations of a dovish shift from the Bank of Canada. Weak job growth in April and an increase in unemployment to 6.9% have intensified speculation about a possible rate cut in June, dampening investor interest in Canadian assets. Meanwhile, renewed optimism for a comprehensive US-Canada trade agreement, following discussions between Vice President Vance and Prime Minister Carney, has reduced bilateral policy risks. Investors are now keenly awaiting Canadian inflation data due tomorrow, which is likely to be crucial in determining the Bank of Canada's short-term policy direction.