**Canadian Dollar Falters Against Majors Amid Weak Start to 2024: A Deep Dive into Market Drivers**
*Original reporting credited to VT Markets.*
As 2024 gets underway, the Canadian dollar (CAD) has experienced a notable decline, underperforming against nearly all of its major counterparts. After an already turbulent 2023 marked by inflationary pressures, interest rate fluctuations, and volatile commodity markets, the CAD has not found stable footing going into the new year. Several interrelated economic, monetary, and geopolitical factors have played into the currency’s downward trend.
This article unpacks the recent movements of the Canadian dollar, outlines the main contributing factors to its depreciation against major world currencies, and considers what lies ahead for the loonie in the global foreign exchange market.
## Overview: Canadian Dollar’s Early-2024 Performance
Since the start of 2024, the CAD has weakened relative to most major global currencies, including the U.S. dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP), and Swiss franc (CHF). The following is a snapshot of its recent movements as of mid-February 2024:
– **CAD/USD**: The Canadian dollar has fallen over 2.3 percent against the U.S. dollar, affected by diverging central bank policies and safe-haven flows favoring the greenback.
– **CAD/EUR**: The euro gained ground as the European Central Bank (ECB) signaled less dovish intent than the Bank of Canada.
– **CAD/JPY**: The yen rose relative to the CAD despite Japan’s historically low interest rates, indicating global demand for safe-haven assets amid geopolitical uncertainty.
– **CAD/GBP**: Sterling strength, supported by strong U.K. wage growth and inflation retention, further weighed on the loonie.
– **CAD/CHF**: Growing safe-haven demand for the Swiss franc limited CAD gains and contributed to further weakness.
## Key Drivers Behind the Canadian Dollar’s Decline
Several key factors have conspired to push the Canadian dollar lower during the early months of 2024:
### 1. Dovish Stance by the Bank of Canada (BoC)
– The Bank of Canada (BoC) has shifted to a more dovish tone in recent months as Canada’s economy shows increasing signs of stagnation.
– The BoC has opted to keep its policy rate steady at 5.0 percent, one of its highest levels since 2001, but has also signaled that it may begin easing later in 2024, depending on economic conditions.
– In contrast to other central banks like the Federal Reserve, which has shown more restraint in embracing near-term rate cuts, the BoC’s relatively dovish messaging has made the CAD less attractive to investors.
– BoC Governor Tiff Macklem recently emphasized the need to monitor labor market softness and weakening consumption before making any further policy changes, underlining that inflation is trending downward.
### 2. Sluggish Economic Growth in Canada
– Canada’s GDP growth has been faltering. The latest quarterly data suggested flat or even slightly negative growth in the fourth quarter of 2023, marking the second time in recent quarters that Canada flirted with a technical recession.
– Consumer spending has slowed markedly due to high interest rates and increasingly tight household budgets.
– Business confidence has also dipped, with weaker investment intentions reported in the BoC’s Business Outlook Survey.
– Key sectors like housing and retail have cooled substantially, reducing inflationary pressures that would justify monetary tightening.
### 3. Weakening Inflation Expectations
– Canadian inflation, although still above the BoC’s 2 percent target, has eased in recent months. January’s CPI data showed inflation slowing to 3.2 percent annually, down from over 6 percent recorded at the height of the tightening cycle.
– Core inflation, which more directly influences BoC policy, has also come down, reinforcing expectations that rate cuts are
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