As of October 3, 2024, the Canadian dollar is projected to strengthen against the US dollar in 2025, driven by lower borrowing costs that are expected to boost economic growth. A recent Reuters poll conducted from September 30 to October 2, 2024, indicates that the loonie has rallied 3.3% since hitting a near two-year low of CAD$1.3946 per US dollar in August 2024. The poll forecasts that the Canadian dollar will consolidate its gains to CAD$1.3514 in three months and advance further to CAD$1.3275 within a year. This optimism comes as the Bank of Canada has cut its benchmark interest rate by 75 basis points since June 2024, bringing it down to 4.25%. These rate cuts are anticipated to stimulate the economy, despite Canada having the highest household debt in the G7, currently at 184% of net disposable income. Analysts suggest that the loonie's performance will also be influenced by US fiscal and trade policies following the upcoming elections.
In the broader context, the US dollar has been experiencing a decline against major currencies, including the Canadian dollar, which appreciated from CAD$1.38 to CAD$1.34 for CAD$1 over the past month. This depreciation is linked to growing uncertainties regarding the US economy and expectations of further interest rate cuts by the Federal Reserve. Experts from Desjardins and the National Bank predict that this trend may be temporary, with expectations of three 25 basis point rate cuts by the end of the year. The US unemployment rate rose to 4.3% in July, further contributing to the dollar's depreciation. Meanwhile, the current cross-border purchasing power for Canadians has improved to 74 cents US, up from 72 cents US a month ago, making the cost of exchanging US$100 now CAD$135, down from CAD$139 a month prior.
Despite the Canadian dollar's recent strength, analysts caution that it may also face slight depreciation due to a fragile Canadian economy and volatile commodity prices. The Canadian dollar had previously retreated against the US dollar after weak domestic data revealed a decline in wholesale trade and home sales, with wholesale trade falling by 0.6% month-over-month in June and home sales dropping by 0.7% in July. These figures raised concerns about the amount of slack in the Canadian economy, which the Bank of Canada has expressed worries about. Notably, Canada’s economy could benefit from a soft landing in the US, as it sends approximately 75% of its exports to the United States, including oil. The price of US crude oil futures settled 1.5% higher at $78.16 a barrel. [62614292][f0f46027][63f0e8f0]