The Canadian Dollar (CAD) is softer again—which is no great surprise given the flow of news from Ottawa in the past 24 hours. Freeland’s shock departure from Finance and the tone of her resignation letter leaves a dense cloud of political uncertainty hanging over government. The fall economic update made for poor reading, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
CAD extends losses
“The government blew through its fiscal barriers in the last FY (CAD62bn versus the pledge to keep it below CAD40.1bn) and will run a bigger than expected deficit this year. The government announced more spending on border security, extended tax breaks on business investment and announced plans which would allow it to restrict imports and exports as it prepares for Trump 2.0.”
“This morning’s Canadian CPI data is largely moot—the Bank of Canada’s rate cut last week and signal that it will slow the pace of easing takes the onus off the data to shape the outlook for policy. In comments yesterday, BoC Governor Macklem reiterated that the threat of tariffs clouded the outlook and said the Bank would likely look at whether it was measuring inflation properly and whether the 2% inflation target was still appropriate in the forthcoming review of its inflation-targeting framework.”
“The USD has edged off the overnight high in European trade which may pave the way for some short-term consolidation in the funds in our session. The CAD retains a weak undertone, however, and the scope for gains is limited - perhaps only to the low/mid-1.42s for now. Resistance is 1.4350.”
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