FX.co ★ Canadian Dollar Rebounds After Consumer Resilience

The Canadian dollar has shown considerable strength, moving toward 1.375 per US dollar and nearing its highs from September. This follows a previous dip, driven by recent domestic data and reshaped policy expectations that have helped to stabilize the currency. Preliminary estimates suggest that retail sales rose by approximately 1.0% in August, effectively reversing July's 0.8% decline. This indicates a healthier demand from households than what the markets had anticipated, thereby decreasing the likelihood of a significant easing cycle by the Bank of Canada. Previously, the BoC reduced its policy rate by 25 basis points to 2.5% in response to a sharper-than-expected economic slowdown, which included a 1.6% contraction in the second quarter GDP and an almost 27% drop in exports. Meanwhile, the labor market's weakening, reflected by net job losses and unemployment hovering around 7.1% in August, has reduced wage pressures, further supporting the dovish policy stance. Concurrently, the US dollar has experienced volatility following the Federal Reserve's 25 basis point rate cut and Chair Powell's cautious remarks. Initially, the dollar weakened but later regained strength as the markets processed the Fed’s updated outlook.