Canadian Dollar recedes after BoC cuts rates and ends QT


  • The Canadian Dollar lost 0.25% against the Greenback on Wednesday.
  • The Bank of Canada cut interest rates by another 25 bps, to 3%.
  • The BoC also announced the end of its quantitative tightening program.

The Canadian Dollar shed one-quarter of one percent against the Greenback on Wednesday, falling back after the Bank of Canada (BoC) slashed another 25 bps from interest rates, bringing the BoC’s main reference rate down to 3.0%. The Canadian interest rate peaked at 5% in July of 2023, and the BoC’s latest rate cut follows two back-to-back jumbo cuts of 50 bps in October and December of last year.

The Bank of Canada also announced the end of its quantitative tightening program, and is expected to restart asset purchases in early March. However, BoC Governor Tiff Macklem pulled back from the brink, saying that the BoC isn’t expecting to full-on restart quantitative easing programs immediately. The looming threat of widespread trade tariffs from US President Donald Trump is definitely weighing on the BoC, and rate swap markets are pricing in nearly-even odds that the Canadian central bank will deliver another 25 bps rate cut in March.

Daily digest market movers: Canadian Dollar sheds weight after BoC rate cut

  • Despite getting knocked back post-BoC rate cut, the Canadian Dollar is still treading water within its recent range, keeping USD/CAD hobbled near the 1.4400 handle.
  • With the CAD’s interest rate differential against the US Dollar set to widen further heading into Q2, Loonie bulls have limited room to run.
  • Tariffs are the looming threat to the BoC’s policy stance in 2025.
  • BoC policymakers have brushed off the Loonie sitting at multi-year lows against the USD for the time being, but continued declines may spark policy adjustments moving forward.
  • The BoC also snuck in a slight upside revision to inflation forecasts, now see annualized inflation metrics to hold slightly above the 2.0% target through 2026.
  • BoC Governor Macklem: Tariffs threat weighed on the bank's decision

Canadian Dollar price forecast

The Canadian Dollar has shed some weight against the US Dollar for three consecutive trading days, falling back around four-tenths of one percent through the first half of the trading week and bolstering USD/CAD back above the 1.4400 handle. The pair has been in a rough sideways grind for over six weeks after the Loonie fell to multi-year lows against the Greenback and USD/CAD tapped 1.4500 for the first time since the pandemic.

USD/CAD price action remains hobbled in a choppy flat channel between 1.4300 and 1.4500, with bids continuing to swirl around 1.4400 in back-and-forth chart momentum. The pair is overall poised for a topside break into chart paper above 1.4500, but a pullback below the 50-day Exponential Moving Average (EMA) rising into 1.4270 could see an extended bearish slide.

USD/CAD daily chart

Canadian Dollar FAQs

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

USD/JPY off lows but heavy near 151.50 amid upbeat Japan's Q4 GDP

USD/JPY off lows but heavy near 151.50 amid upbeat Japan's Q4 GDP

USD/JPY is off the lows but holds moderates losses near 151.50 early Monday. Japan's prelimimary GDP report showed the economy expanded 0.7% QoQ and 2.8% YoY in Q4. The data blew past market expectations and reaffirmed bets for another BoJ rate hike, boosting the Japanese Yen. 

USD/JPY News
AUD/USD holds gains above 0.6350 amid US Dollar weakness

AUD/USD holds gains above 0.6350 amid US Dollar weakness

AUD/USD holds gains above 0.6350 in the Asian session on Monday. The sustained US Dollar weakness and prospects of Russia-US meeting outweigh dovish RBA expectations, supporting the pair amid a US holiday-thinned market. All eyes remain on Tuesday's RBA interest rate decision. 

AUD/USD News
Gold buyers regain poise as focus shifts to US-Russia meeting

Gold buyers regain poise as focus shifts to US-Russia meeting

Gold price rebounds after Friday’s profit-taking slide; light trading could exaggerate moves. The US Dollar and US Treasury yields consolidate losses, bracing for US-Russia talks and Fed Minutes.

Gold News
Bitcoin, Ethereum and Ripple hold steady while XRP gains momentum

Bitcoin, Ethereum and Ripple hold steady while XRP gains momentum

Bitcoin has been consolidating between $94,000 and $100,000 for almost two weeks. Ethereum price follows in BTC’s footsteps and hovers around $2,680, while Ripple shows strength and extends its gains on Monday after rallying 14% last week.

Read more
Tariffs likely to impart a modest stagflationary hit to the economy this year

Tariffs likely to impart a modest stagflationary hit to the economy this year

The economic policies of the Trump administration are starting to take shape. President Trump has already announced the imposition of tariffs on some of America's trading partners, and we assume there will be more levies, which will be matched by foreign retaliation, in the coming quarters.

Read more
The Best Brokers of the Year

The Best Brokers of the Year

SPONSORED Explore top-quality choices worldwide and locally. Compare key features like spreads, leverage, and platforms. Find the right broker for your needs, whether trading CFDs, Forex pairs like EUR/USD, or commodities like Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures

Best Brokers of 2025