The Canadian Dollar (CAD) weakened in February and was the third worst performing G10 currency. Economists at MUFG Bank analyze Loonie’s outlook.
CAD near-term downside risks before recovery
Declining inflation and weaker consumer spending in Canada should allow for the BoC to commence cutting rates by June. This could possibly coincide with a decision from the BoC to end its QT program. The labour market remains robust however and wage growth remains the concern that could delay a decision to cut rates and/or end QT.
Still, while the timing of starting monetary easing may differ slightly from the US, we see the extent of easing in 2H 2024 being similar which could see CAD strength versus the Dollar being less than for other G10 currency gains versus the Dollar
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