Canadian Dollar Records Third Straight Monthly Decline Amid Rate Cut Speculations and Economic Slowdown

The Canadian dollar experienced a slight uptick against its U.S. counterpart on Friday, gaining 0.1% to trade at 1.40 per U.S. dollar, equivalent to 71.43 U.S. cents. However, the loonie remained on track for both weekly and monthly losses, reflecting a 0.1% drop for the week and a 0.5% decline for the month—its third consecutive monthly decrease.

The currency’s performance was shaped by disappointing economic data and growing expectations of a significant interest rate cut by the Bank of Canada (BoC). Canada’s gross domestic product (GDP) grew at an annualized rate of 1% in the third quarter, falling short of the central bank’s forecast of 1.5% and marking a slowdown from 2.2% growth in the previous quarter.

Economists believe the weaker-than-expected GDP data strengthens the case for an outsized rate cut by the BoC at its upcoming December 11 policy meeting. “From the bank’s perspective, this adds to the case for another 50 basis point cut in December,” said Robert Both, Canadian macro strategist at TD Securities.

Market expectations for a half-percentage-point rate cut surged to 50%, compared to 31% before the release of the GDP figures, according to swaps market data. A smaller 25-basis-point cut is already fully priced in.

The Canadian dollar’s struggles have also been linked to external pressures, including trade uncertainties. Earlier this week, the currency hit a 4.5-year low of 1.4177 amid concerns over potential U.S. tariffs on Canadian imports.

Adding to the downward pressure, oil prices—critical to Canada’s resource-driven economy—dipped 0.1% to $68.65 per barrel on Friday. This marked a continuation of the commodity’s weekly losses, driven by easing fears of supply disruptions linked to geopolitical tensions in the Middle East.

Meanwhile, U.S. dollar weakness provided some relief for the loonie. The greenback declined against a basket of major currencies after stronger-than-expected Tokyo inflation data heightened the likelihood of a Bank of Japan interest rate hike in December.

Canadian bond yields also moved lower, with the 10-year yield dropping 7.7 basis points to 3.149%, its weakest level since October 18. The decline underscores investor concerns about Canada’s slowing economy and the potential for aggressive monetary easing.

As the BoC prepares for its December meeting, the combination of sluggish growth, declining oil prices, and trade uncertainties will continue to influence the loonie’s trajectory in the coming weeks.