Canadian Dollar Hits 8-Month High but Faces Headwinds Amid Economic Concerns

Canadian Dollar Hits 8-Month High but Faces Headwinds Amid Economic Concerns

The Canadian Dollar (CAD) rallied to a fresh eight-month high against the US Dollar (USD) on Thursday, buoyed by the Bank of Canada’s (BoC) recent decision to pause its aggressive rate-cutting cycle. However, the momentum behind the Loonie is showing signs of exhaustion, as concerns about both US and Canadian economic growth come into sharper focus.

Loonie Supported by BoC Decision

Earlier this week, the BoC left its benchmark interest rate unchanged following seven consecutive cuts. This policy pause gave the CAD a temporary lift, reflecting confidence in domestic stability—at least for now.

Still, BoC officials have expressed caution about Canada’s economic outlook, and businesses across the country are beginning to warn of an impending slowdown. Without stronger growth signals, the Canadian Dollar’s upside may remain limited.

US NFP Report Could Shift USD/CAD

As markets look ahead to Friday’s US Nonfarm Payrolls (NFP) data, volatility in the USD/CAD pair is expected. Any surprises in the NFP numbers could quickly reverse gains for the Loonie, especially if US labor market strength revives Federal Reserve rate hike expectations.

Moreover, sentiment in both countries is subdued. Economic indicators have been sending mixed signals, prompting a more cautious trading environment across major forex pairs.

Outlook: Momentum Slowing for CAD

Despite recent strength, the CAD rally may be losing steam. Key resistance levels lie just above 1.3600 (USD/CAD), and without new catalysts, the pair may struggle to extend its decline. Additionally, ongoing global macroeconomic uncertainty and muted risk appetite are contributing to a flattening momentum curve for the Canadian currency.

Related Reads on Tredu:

• How Central Bank Decisions Affect Currency Pairs
• USD/CAD Forecast: What’s Next for the Loonie?
• Understanding NFP Data and Its Market Impact