The Canadian dollar dipped against the U.S. dollar on Thursday amid a cautious market mood, though losses were contained after Bank of Canada Governor Tiff Macklem indicated additional interest rate cuts were unlikely. Macklem warned that further reductions could exacerbate inflation, noting that the economy faces a difficult multi-year adjustment to structural shifts such as U.S. tariffs and AI adoption. With the BoC’s benchmark rate already at the lower end of its neutral range, money markets are now positioning for the next move to be a hike. The currency’ near-term direction may also be swayed by Friday’s employment report and ongoing moves in oil prices and U.S. Treasury yields.
Key Points:
The Canadian dollar weakened slightly (0.1%) to 1.3675 per USD as investor risk aversion grew.
Bank of Canada Governor Tiff Macklem signaled reluctance to cut interest rates further, warning that more cuts could overstimulate demand and fuel inflation.
Macklem highlighted that restructuring Canada’s economy to adapt to U.S. tariffs, slower population growth, and AI will be a lengthy and potentially painful process.
Investors now lean toward the next BoC move being a rate hike rather than a cut.
Upcoming January jobs data could offer new clues on the monetary policy path.
Falling oil prices and a stronger U.S. dollar also influenced currency and bond markets.
