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07/08/24
135
CAD Higher Despite Weak PMI
On Wednesday, the Canadian dollar rallied for the third consecutive day and USD/CAD traded at about 1.3729, down 0.41% for the day in the North American session.
The Ivey PMI for Canada, a useful measure of economic activity, dropped to 57.6 in July, down from June’s 60.0 and lower than the 62.5 market estimate. This shows that although the economy in July continued to expand, it was at a slower pace.
The employment gauge was higher, and the prices index dropped, another indication that inflation is on the way down.
The Bank of Canada lowered rates for the second consecutive time in response to lower inflation and has cut interest rates by 0.50% after holding it steady for nearly a year. Interest rates are still elevated at 4.5% and BoC policymakers will prefer that the Federal Reserve also cuts rates so that the US/Canada rate differential doesn’t widen further.
According to the CME’s FedWatch tool, markets have priced in a 0.5% rate cut by the Fed in Sept. at 63%, a huge shift from a chance of only 11.8% last week. Investors are expecting the Fed to respond strongly after recent indications that the US economy is deteriorating quickly, like the weak nonfarm payrolls for July.
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