Canadian dollar falls for third month as economy weakens

In Canada, the economic landscape has exhibited signs of decline, with the Canadian dollar (CAD) facing its third straight monthly decrease as of November 2024. Specifically, the CAD closed at 1.40 per U.S. dollar, equivalent to 71.43 U.S. cents, despite a slight uptick of 0.1 percent on Friday. The latest Gross Domestic Product (GDP) figures revealed an annualized growth rate of only 1 percent for the third quarter, which fell short of the Bank of Canada’s (BoC) forecast of 1.5 percent. This slowdown follows a more robust growth rate of 2.2 percent experienced in the previous quarter. As a result of these disappointing economic indicators, analysts have started to anticipate a significant interest rate cut from the BoC, with investors now seeing a 50 percent likelihood of a 50 basis point reduction slated for the Dec. 11 policy announcement. Prior to these GDP numbers, the probability of a large rate cut was only at 31 percent, indicating the impact of the economic data on investor sentiment and expectations for future monetary policy. The anticipation of a second consecutive half-percentage-point rate cut has raised discussions among market experts. It is noteworthy that the market has already accounted for a 25-basis-point reduction, underscoring the degree of concern surrounding the economy’s trajectory. In further financial indicators, the CAD's movements were compounded by the recent drop in oil prices, which is particularly significant given that oil is one of Canada’s primary exports. The price of oil has seen a dip of 0.1 percent, landing at $68.65 per barrel, amid diminishing fears related to supply disruptions from geopolitical tensions in the Israel-Hezbollah conflict. The weakening of the Canadian dollar is further contextualized by the recent touch at a 4-1/2-year low of 1.4177 against the U.S. dollar, symbolizing investor anxiety about potential U.S. tariffs impacting imports from Canada. Additionally, Canadian bond yields have shown a downward trend across the curve, particularly the 10-year yields which decreased to 3.149 percent—marking the lowest point since mid-October. These developments reflect a comprehensive picture of an economy grappling with slowed growth and the implications of potential monetary policy adjustments by the central bank. As Canada navigates through these financial challenges, stakeholders remain vigilant about forthcoming policy decisions that may arise from the Board of Canada's upcoming meetings.