**Canadian Dollar Starts 2024 on Weak Footing Against Major Currencies**
*Based on the article by VT Markets and supplemented with information from additional financial sources such as Reuters, Bloomberg, and the Bank of Canada.*
As 2024 moves forward, the Canadian dollar (CAD) has shown signs of weakness, declining against most major currencies. The sluggish start comes amid a confluence of global and domestic factors including softer commodity prices, subdued economic data, and diverging monetary policy expectations between Canada and other major economies. The CAD’s depreciation reflects both internal vulnerabilities in the Canadian economy and growing strength in competing currencies such as the USD, EUR, and GBP.
Below is a comprehensive breakdown of the contributing factors to the Canadian dollar’s performance at the start of 2024, and what may lie ahead for the loonie.
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### Current Performance of the Canadian Dollar
– As 2024 began, the Canadian dollar dropped in value against nearly all major counterparts, including the US dollar (USD), Euro (EUR), British pound (GBP), and Japanese yen (JPY).
– As of mid-January, the USD/CAD pair traded above the 1.34 level, reflecting growing investor preference for the US dollar amid economic uncertainty.
– The loonie also struggled against the euro and pound, with EUR/CAD and GBP/CAD both tilting in favor of the European and British currencies, respectively.
– This decline is particularly notable since the Canadian dollar often benefits from higher commodity prices, especially crude oil, given Canada’s role as a major oil exporter.
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### Key Drivers Behind the Loonie’s Weakness
#### 1. Falling Crude Oil Prices
– Oil is a fundamental driver of the Canadian economy. In 2023, oil accounted for approximately 20 percent of total Canadian exports.
– However, global benchmark oil prices, including West Texas Intermediate (WTI), have seen notable volatility and softness in early 2024, trading around $70 to $75 per barrel — below previous highs.
– Concerns about global economic slowdown, particularly in China, have dampened demand expectations for energy, weighing on oil prices.
– Lower oil prices reduce foreign exchange inflows into Canada, decreasing support for the loonie.
#### 2. Dovish Policy Expectations from the Bank of Canada
– Amid signs of slowing economic growth, the Bank of Canada (BoC) has adopted a cautious tone toward future interest rate policy.
– Canada’s latest GDP data showed only modest growth, and consumer spending remains subdued.
– Inflation, while still above the BoC’s 2% target, has been easing faster than in some other countries, giving the central bank more room to pause or even begin cutting rates.
– Economists increasingly expect the BoC to start easing monetary policy in mid-to-late 2024, in line or even ahead of the U.S. Federal Reserve.
– By contrast, central banks like the Fed, European Central Bank (ECB), and Bank of England (BoE) are taking a slower approach to policy shifts, lending their currencies relative strength over the CAD.
#### 3. Soft Domestic Economic Data
– Canada’s labor market, once a pillar of strength, has shown signs of weakening. The latest jobs figures from Statistics Canada show a slight rise in unemployment, with wage growth slowing.
– Retail sales declined on a month-over-month basis heading into the new year, underlining persistent weakness in consumer confidence.
– Canadian housing activity remains constrained, with high mortgage rates dampening home purchases and new construction.
– Business investment remains tepid, reflective of persistent economic uncertainty and high borrowing costs.
#### 4. Interest Rate Differentials
– A key driver of currency valuations is interest rate differentials, especially between the Canadian dollar and the US dollar.
– The US Federal Reserve has maintained its terminal rate outlook for longer than markets had expected, with Fed officials signaling they are in no rush to cut rates.
– This divergence has widened the yield advantage of the
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