TORONTO — The loonie fell below 70 cents US on Tuesday after the latest reading on inflation dropped below two per cent.
The Canadian dollar traded for 69.91 cents US compared with 70.23 cents US on Monday after Statistics Canada said the annual inflation rate in November was 1.9 per cent, down from 2.0 per cent in October and below the Bank of Canada's target.
“What the CPI data shows is consistency. Consistency that the Canadian economy is weaker than the U.S. economy,” said Lesley Marks, chief investment officer of equity at Mackenzie Investments.
Marks said that data supports the Bank of Canada’s decision to be “more dovish” than the U.S. central bank, giving it more leeway to keep cutting interest rates.
Markets were coming off of a hectic Monday that saw Finance Minister Chrystia Freeland resign before she was set to present the fall economic statement.
“There's a lot of uncertainty. And the market generally doesn't like uncertainty around the future of the leadership for our country and how that will play out,” Marks said.
Political turmoil is one of several factors contributing to ongoing weakness in the loonie, said Marks, alongside potential tariffs from the new U.S. administration and the increasing differential between the economy and interest rates in Canada and the U.S.
“So you’ve kind of got three things working against the Canadian dollar.”
The loonie's move came as the S&P/TSX composite index was down 27.50 points at 25,119.71.
In New York, the Dow Jones industrial average was down 267.58 points at 43,449.90. The S&P 500 index was down 23.47 points at 6,050.61, while the Nasdaq composite was down 64.83 points at 20,109.06.
In the U.S., the latest report on retail sales was stronger than expected.
The strength in the data reinforced that U.S. consumers are feeling optimistic about the economy, especially following the election of Donald Trump, said Marks.
“Stock markets in general have been very strong, and people think that a second Trump term will be good for the U.S. economy,” she said.
“So Americans feel good about the economy, and that is informing their spending decisions, which have surprised to the upside.”
On Wednesday the U.S. Federal Reserve is expected to cut its key interest rate again. Marks said markets are starting to accept that there will likely be fewer cuts from the Fed in the coming year than previously expected
“It’s a bit of a reality check,” she said.
“I think that the U.S. economy ... it’s not showing the need for that level of stimulus. And I think that the Federal Reserve wants to be cautious in the face of what could potentially be inflationary trends.”
Despite the uncertainty heading into the end of 2024, Marks pointed out it’s been a great year overall for equities.
“It’s not surprising that we’re entering a bit of a consolidation phase here right now,” she said.
The February crude oil contract was down 64 cents at US$69.65 per barrel and the January natural gas contract was up 10 cents at US$3.31 per mmBTU.
The February gold contract was down US$8 at US$2,662 an ounce and the March copper contract was down four cents at US$4.15 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Dec. 17, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Rosa Saba, The Canadian Press
