The Canadian Dollar round-trips as Fed officials differ on hike timing
Tuesday's two Canadian catalysts, a flat July for the economy and a later start to Bank of Canada (BoC) bond buying, didn't move USD/CAD. The pair went above 1.4200 for the first time since early July and fell back twice.
On Tuesday, two Canadian economic indicators failed to move the USD/CAD exchange rate. The pair briefly exceeded 1.4200 for the first time since early July before slipping back. Former New York Fed President William indicated there was no urgency to hike interest rates again, a statement made during a conference in Buffalo, close to Ontario.
Meanwhile, the Bank of Canada (BoC) announced their bond buying would commence later in 2027, if not 2028, at a press event in Manhattan. US job openings dropped to 7.079 million in August, below forecasts. Following Governor Barr's remarks in Detroit that energy prices and AI investments would likely require more hikes, USD/CAD rebounded to its session high.
Fed officials still price a 70% chance of a hike in October, suggesting the Canadian Dollar could remain buoyant. The timing is crucial as both central banks decide on October 28. The BoC hike on the same day as the Fed could narrow the rate gap. Fed officials do not anticipate inflation returning to target until 2028, and see no need for haste.
Canada's economy grew flat in July, as forecast, following June's 0.4% growth. Construction rose by 1.3%, and utilities increased by 1.7%, offsetting a 0.9% decline in manufacturing. Statistics Canada projects August growth to be 0.2%, with the third quarter annualized near 2.0%, ahead of the BoC's 1.5% forecast. The BoC Governor stated readiness to raise rates multiple times if inflation remains high.
Swaps indicate a nearly even chance of a BoC hike on October 28, and Canada's third quarter growth is projected near 2.0% annualized. The BoC will start government bond buying late 2027 or 2028, a routine maintenance move rather than stimulus. Core PCE prices, the Fed's preferred inflation gauge, are expected to rise 0.3% month-over-month in August, with a steady 3.3% year-over-year rate.
Markets will closely watch this release on Wednesday at 12:30 GMT, with headline prices projected to increase 3.7% year-over-year. Canada's next economic indicator, the S&P Global Manufacturing PMI, will be released on Thursday at 13:30 GMT, following August's decline.
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