The Canadian dollar (loonie) is experiencing its worst losing streak in over seven years, driven by increased speculation that the Bank of Canada (BOC) will accelerate interest rate cuts following weaker-than-expected inflation data. The loonie fell as much as 0.3% against the US dollar, reaching a low of C$1.3839 before partially recovering.
The September consumer price index (CPI) report showed inflation growing at its slowest annual pace in over three years, falling below the BOC's 2% target. This led to a rally in Canadian debt markets and heightened expectations of more aggressive monetary easing. Swaps traders are now pricing in 45 basis points worth of rate cuts at the BOC’s upcoming meeting on Oct. 23, up from 39 basis points just a day earlier.
Economists, including Jayati Bharadwaj from TD Securities, have noted the increased likelihood of a half-point rate cut, given the weak inflation data. While the loonie may continue to decline, Bharadwaj identified C$1.39 as a key technical barrier against further weakening.
The Canadian dollar has struggled since reaching a six-month high in late September, as traders compare the BOC's policy trajectory with that of other Group-of-10 nations. The BOC was one of the first central banks to start cutting rates in June, followed by the US Federal Reserve in September.
Karl Schamotta, chief market strategist at Corpay, noted that while the data doesn't suggest the need for drastic emergency measures, it does increase the possibility of more aggressive rate cuts to mitigate downside risks.
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