The recent hiring slowdown in Canada has led to an increase in unemployment to 6.2%, prompting speculation of a potential interest rate cut by the Bank of Canada in July. ING’s FX analyst Francesco Pesole suggests that the central bank may consider lowering rates earlier than previously expected, with market pricing indicating a possibility of easing in July.
While the initial forecast predicted rate cuts in September, October, and December, the current economic indicators have shifted the focus to a potential cut in July. The decision will likely hinge on the upcoming June inflation report, following slightly higher than anticipated figures in May.
Despite the conservative market pricing for total easing in 2024, there is room for a more dovish stance from the Bank of Canada. Pesole believes that the Canadian dollar (CAD) may continue to underperform compared to other commodity currencies due to domestic economic factors and its lower sensitivity to changes in US interest rates.