CIBC Lowers Canadian Dollar Forecast

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The Bank of Canada will lower interest rates with two back-to-back 50 basis point interest rate cuts, which means a weaker Canadian Dollar than previously predicted.

This is according to the Canadian Imperial Bank of Commerce (CIBC), one of Canada's largest lenders and investment banking providers.

"We have revised our BoC call to back-to-back 50 bps cuts in October and December. As a result, we are revising up our Q4 2024 USD/CAD forecast," says Noah Buffam, a strategist at CIBC.

The call comes after Statistics Canada said on Tuesday that CPI inflation read at 1.6% year-on-year in September, which was below the 1.8% the market was expecting.

Analysts think these data are enough to push the Bank of Canada into a 50 basis point interest rate cut next week.

But CIBC thinks the incoming data makes it "increasingly clear that the Bank should accelerate the path back to neutral."

Economists think September's GDP print will prove tepid and inflation momentum is pointing to the downside.

Regarding jobs, the employment rate continues to decline and hours worked dropped -0.4% m/m in September's report.

"Altogether, the data suggests that the Bank is likely to accelerate the pace of easing," says Buffam.

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Strategy-wise, he thinks USD/CAD is going higher through the October BoC meeting, as our dovish outlook for the Bank has yet to be fully priced.

CIBC has raised its U.S. Dollar-Canadian Dollar forecast for Q4 to 1.38.

All else equal, this implies a higher GBP/CAD and EUR/CAD.