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Canadian Loonie Rises to 8-Week High Despite Surge in US Inflation and FED's Rate Cut Expectations

February 12, 2025 (Investorideas.com Newswire) Investorideas.com, a go-to platform for big investing ideas releases market commentary from Harbourfront Wealth - Sonora Wealth Group.

"The Canadian Dollar (CAD) rose to 8-week highs against the US dollar despite an unexpected rise in US inflation. Core inflation increased by 3.3%, while headline inflation rose by 3%. These data further reinforced Federal Reserve Chair Jerome Powell's hawkish remarks pointing to the economy's resilience and persistent inflation risks. As a result, markets now anticipate a rate cut in October rather than July. This could result in a positive short-term outlook for the US dollar, while the Canadian dollar may face heightened selling pressure.

Domestically, the outlook for the Loonie remains fragile amid mixed economic data. While building permits surged by 11%, indicating economic development, business permits declined, suggesting an economic slowdown, as indicated by the PMI figures, which remained in the contraction zone. Consequently, the Bank of Canada may need to continue cutting rates, exerting additional bearish pressure on treasury yields and the currency.

Looking forward, the ongoing uncertainty surrounding trade tensions could lead to increased market volatility, which would likely favour safe-haven assets such as the US dollar, while maintaining pressure on the Canadian dollar. As trade tensions persist, market participants may continue to exercise caution, potentially limiting any short-term recovery for the Canadian dollar."

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