USDCAD Fundamental Analysis – 15-August-2024

The Canadian dollar recently surged past the $1.37 (USD/CAD) mark against the US dollar, reaching its highest level in nearly a month. This boost mainly comes from a weaker US dollar, which slipped to a yearly low due to lower-than-expected inflation data.

The soft inflation numbers eased concerns about aggressive interest rate hikes in the US, reducing demand for the greenback.

Unemployment Rate Remains High, Signaling Economic Challenges

In Canada, the unemployment rate stayed at 6.4% in July, the highest in over two and a half years. This stable but elevated unemployment rate suggests the job market is under strain. For the second month, the number of people employed unexpectedly dropped, catching analysts off guard.

Additionally, fewer people actively participate in the job market, with the participation rate hitting its lowest since 1998 (excluding the pandemic years). These trends point to a labor market that is struggling to gain momentum.

Manufacturing Slowdown and Economic Weakness

Canada’s manufacturing sector continues to face a downturn, reflecting a broader economic slowdown. Sluggish growth in key industries and reduced demand have added to concerns that the country’s economic activity is cooling off.

This slowdown increases the chances that the Bank of Canada might consider more interest rate cuts to stimulate growth. However, such measures could limit the Canadian dollar’s upward potential, making it more challenging for the currency to gain further strength.

• Also read: USDCHF Fundamental Analysis – 15-August-2024

Economic Outlook and the Loonie’s Future

While the Canadian dollar has shown short-term strength against the US dollar, several economic indicators are flashing warning signs. A weakening job market, declining labor force participation, and ongoing financial challenges could force the Bank of Canada to adopt a more accommodative stance.

If further rate cuts are implemented, they could place additional pressure on the loonie in the coming months, even as it temporarily benefits from the US dollar’s weakness.

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