The U.S. dollar to Canadian dollar (USD/CAD) exchange rate has hit a one-year high, following a disappointing performance from the Canadian economy in Q3. The flat Q3 GDP comes on the heels of a slight dip in Q2, falling short of the Bank of Canada’s growth forecast of +0.8%.
Goods-producing industries, led by agriculture, have been on a downward trend for five consecutive months due to drought conditions in Western Canada. This downturn was exacerbated by disruptions from fires and strikes in the first quarter, a decline in retail sales, and a stall in the post-pandemic recovery in food and accommodation services.
CIBC cautions that this slowdown may understate the true strength of the economy. Despite the current economic climate, Canada has experienced robust population growth and many homeowners have yet to feel the impact of higher interest rates.
In response to these factors, and in an effort to prevent further economic decline, CIBC forecasts that the Bank of Canada will shift from raising to lowering interest rates next year. This forecast is based on the expectation that a rate cut will stimulate economic activity and offset the challenges currently facing the goods-producing sectors.