Canadian Dollar roils as US PMIs overshadow BoC rate hold

• Canadian Dollar extended declines after US PMIs cast a long shadow.
• Bank of Canada remains dovish on inflation outlook.
• Canadian money markets are trimming their BoC rate cut bets.

The Canadian Dollar (CAD) fell on Wednesday, pushed lower across the FX market as the Loonie struggles under the weight of a dovish Bank of Canada (BoC) that is still extremely cautious on rate cuts with Canadian inflation not expected to return to the BoC’s 2% target until 2025.

Canada saw money markets trim bets of a BoC rate cut in April down to 40%, tumbling from 65% before the BoC’s monetary policy statement on Wednesday morning. The Bank of Canada followed up their latest policy statement with a press conference, where BoC Governor Tiff Macklem highlighted the BOC’s determination to see inflation come down before adding rate cut discussions to the table.

Daily digest market movers: Canadian Dollar grinds lower on soft BoC, US PMI beat

• Bank of Canada reiterates that monetary policy structure is currently working, but there is still a long way to go on inflation.
• BoC Governor Tiff Macklem states that internal discussions should remain squarely focused on how long to keep rates at 5%, rather than focusing on delivering rate cuts as soon as possible.
• Canadian money markets are pulling away from BoC rate cut bets, odds of an April rate cut down to 40% from 65% prior to BoC statement.
• BoC hopes that Canadian growth will slowly pick up its pace through the second half of 2024 with inflation falling below 2% in early 2025.
• BoC continues to focus on rising rents and shelter costs alongside high wage growth as problematic areas.
• Tiff Macklem comments on policy outlook
• Wednesday’s US Purchasing Managers’ Index (PMI) drove investors into safe havens after US figures cleanly beat the market, putting downside pressure on broad-market rate cut hopes.
• The US’ S&P Global Manufacturing PMI hit a 15-month high of 50.3 versus the expected hold at 47.9 in January as the US economy continues to outpace forecasts put forth by markets hoping for an economic backslide to spark a rate cut cycle.
• The US’ S&P Global Services PMI component also hit a seven-month high of 52.9 versus the forecasted decline from 51.4 to 51.0.

Technical Outlook: Canadian Dollar struggles under the weight of entrenched BoC

The Canadian Dollar (CAD) is on pace to be the poorest performer of the majors on Wednesday. The CAD is in the red across the board, down close to a full percent against the Japanese Yen (JPY) and the Swiss Franc (CHF). The Loonie saw its most moderate losses against the US Dollar (USD) but still shed around a fifth of a percent against the Greenback for the day.

The USD/CAD rallied back into the 1.3490 neighborhood after an early plunge to 1.3430 on Wednesday. The pair is seeing some technical friction from the 200-hour Simple Moving Average (SMA), but near-term momentum remains tilted toward the bullish side with the early week’s swing low pricing in a technical floor at 1.3420.

Continued bullish momentum will send the USD/CAD through a technical congestion zone as the 50-day and 200-day SMAs consolidate near the 1.3500 handle. The pair is on pace to close in the green for a fourth straight week as the USD/CAD grinds back up from December’s bottom bids near 1.3200.

USD/CAD Hourly Chart

USD/CAD Daily Chart