USDCAD Fundamental Analysis – 7-June-2024

USD/CAD—In June, the Canadian dollar weakened, dropping beyond 1.37 per USD to its lowest point in a month. This decline followed the Bank of Canada’s decision to start an easing cycle, reducing the key interest rate by 25 basis points to 4.75%.

Inflation Drops as Rates Hit Target

For nearly a year, the central bank had kept the interest rate at a 22-year high to combat inflation. However, recent economic data showed that inflation slowed, bringing it closer to the bank’s target. This sign of “disinflation” indicated that the previous high interest rates were having the desired effect.

Additionally, GDP growth was weaker than expected in the year’s first quarter, and the job market showed signs of softening.

These factors influenced the Bank of Canada’s decision to lower the interest rate. The bank hopes to stimulate economic activity and support the labor market by making borrowing cheaper. However, this move also led to the Canadian dollar weakening against the US dollar.

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Ethan O. Miller

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