Canadian dollar weakens as BoC survey stays consistent with rate cuts

The Canadian dollar CADUSD weakened against its US counterpart on Monday as the greenback notched broad-based gains and a quarterly business survey from the Bank of Canada left the door open to interest rate cuts over the coming months.

Fewer firms are planning for a recession in the coming 12 months but they expect demand to stay subdued over the next year, the BoC’s Business Outlook Survey for the first quarter found.

“It just reinforces that in Canada … there’s slack in the economy and weaker consumer demand. At the same time, inflation is starting to trend lower,” said Aaron Hurd, senior portfolio manager in the currency group at State Street Global Advisors.

“As the year progresses, that’s more consistent with Bank of Canada easing.”

Investors expect the BoC to begin easing in June or July.

Separate data showed that Canadian manufacturing activity moved closer in March to ending a lengthy period of contraction.

The Canadian dollar was trading 0.3 per cent lower at 1.3580 per US dollar, or 73.64 US cents, after trading in a range of 1.3516 to 1.3586.

Speculators have raised their bearish bets on the Canadian dollar to the highest since December, data from the US Commodity Futures Trading Commission showed on Friday.

The US dollar rallied against a basket of currencies as data showed US manufacturing growing for the first time in 1-1/2 years in March. It follows data on Friday that showed strength in consumer spending alongside moderating inflation.

“It just feeds that ‘Goldilocks’ US scenario where the US is still going to have superior growth, higher than the rest of the G10, higher than Canada, by a wide margin,” Hurd said.

The Canadian 10-year yield rose 12.8 basis points to 3.595 per cent, tracking the move in US Treasuries.