FX.co ★ Canadian Dollar Drops to 4-Month Low

In late September, the Canadian dollar fell beyond 1.39 against the US dollar, reaching a four-month low. This was due to weaker domestic economic data and a stronger US dollar, which diminished the attractiveness of the Canadian dollar (loonie) for carry trades. The market adjusted its expectations for a more assertive path of easing by the Bank of Canada (BoC), following the central bank's decision to cut its policy rate and indicate the possibility of further easing, thereby reducing the appeal of Canadian fixed income assets. Meanwhile, the headline Consumer Price Index (CPI) for August recorded an annual increase of 1.9%, while core inflation metrics remained relatively stable. This provided the BoC with some leeway to ease monetary policy, reducing the incentive for foreign capital to remain in Canada. Although a preliminary estimate suggested retail sales rebounded by about 1.0% in August, it was insufficient to counteract expectations of further monetary easing. Governor Macklem's recent remarks on tariff impacts and poor productivity hindering growth underscored the necessity for policy to strike a balance between decelerating economic momentum and inflation trends. Finally, the US dollar appreciated following Federal Reserve commentary emphasizing the dual risks affecting inflation and the labor market.