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Canadian dollar is getting weaker. Here's why.

Explore why the Bank of Canada's recent rate cuts and a surge in unemployment are pushing USD/CAD near 1.3800 while rate differentials with the US may widen further.

Scattered Canadian dollars
Source: Shutterstock
Picture of Frank Kaberna
Frank Kaberna
Director of Strategy, Chicago

USD/CAD trading near 1.3800 amid weak CAD data

The USD/CAD pair is nearing 1.3800, driven by recent weakness in the Canadian dollar following the Bank of Canada's early moves to cut interest rates amidst softening employment and inflation data. Canada’s proactive rate cuts are aimed at stimulating economic activity but pose challenges for the CAD against a strong USD.

Canadian unemployment hits 6.4%

Canada's unemployment rate surged unexpectedly to 6.4% in June, the highest since January 2022. This uptick has contributed to the Bank of Canada's decision to lower interest rates, reflecting concerns over slowing economic momentum and its impact on the labor market.

Bank of Canada cuts interest rates 25bps

In response to faltering economic indicators, the Bank of Canada cut its key interest rate by 25 basis points in June and signals further reductions at the upcoming July meeting. These measures are in response to unemployment rises and underwhelming inflation rates, contrasting with the sturdier economic conditions in the US.

Falling interest rates driving weaker CAD demand

The decrease in Canadian interest rates, potentially widening the interest rate differential with the US to a full 1.00% by July, is diminishing demand for the Canadian dollar. This disparity could lead to significant shifts in investment flows between the two currencies.

Will Canadian dollar depreciate?

As the USD/CAD approaches a critical point near 1.4000, not breached since the pandemic's onset, the continuing economic divergence between Canada and the US may push the CAD to depreciate further, especially if Canadian rate cuts persist.

How hard will US rates fall?

While US unemployment trends upward, mirroring some of Canada's economic challenges, the Federal Reserve is anticipated to enact a 25bps rate cut in September. However, the pace and scale of Canada's rate cuts could influence the trajectory of the USD/CAD pair, particularly if Canadian rates fall more swiftly than US rates.

How to trade Canadian dollar

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. Open, monitor, and close positions on CAD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.

Reviewed by:
Glen Frybarger
Senior Content Strategist, Chicago