FX.co ★ Canadian Dollar Strengthens After BoC Decision

The Canadian dollar has shown strength, moving towards C$1.39 against the US dollar, as investors evaluated the Bank of Canada's decision to reduce interest rates by 25 basis points to 2.25%. Crucially, the central bank communicated that this action is seen as the potential conclusion to its easing measures rather than the beginning of continuous cuts. This stance reflects Canada's current economic conditions: a 1.6% contraction in GDP during the second quarter and a weakening labor market, with unemployment approaching 7.1%, notwithstanding an unexpected 60,000 increase in payroll employment. Additionally, inflation figures reveal an annual headline CPI at 2.4% and the Bank's Trimmed measure at approximately 3.1%. Consequently, traders perceived the rate cut as anticipated and shifted their focus to the Bank of Canada's emphasis on future rate adjustments being contingent on further data. This approach tempers expectations of prolonged weakening of the Canadian dollar driven by policy changes. Meanwhile, a softer US dollar and stable oil prices have alleviated some external pressures on the currency, though ongoing uncertainties surrounding US trade policies and tariffs pose significant risks to economic growth and exchange rates.