December 2024 was a pivotal month for the Canadian foreign exchange (FX) market, marked by significant policy shifts, economic developments, and global trade dynamics. Here’s a comprehensive review of the key events and trends that shaped the CAD and the broader economic landscape.

Bank of Canada’s Policy Decisions

The Bank of Canada (BoC) concluded the year with a bold move, delivering its second consecutive half-point interest rate cut on December 11, 2024. This adjustment brought the policy rate down to 3.25% as the central bank sought to mitigate slowing economic growth and rising unemployment. BoC Governor Tiff Macklem stated that the rate cuts aimed to stabilize the economy and ensure a more sustainable recovery in the months ahead.

Currency Performance

The Canadian dollar (CAD) experienced notable volatility in December 2024:

• Against the U.S. Dollar: The CAD continued to weaken, reflecting concerns over domestic economic pressures and heightened global uncertainty.
• Year-End Outlook: Analysts adjusted their projections, suggesting limited recovery for the CAD in 2025, particularly in light of potential U.S. trade tariffs that could impact Canada’s export-dependent sectors.

Key Economic Indicators

December brought mixed signals for Canada’s economy:

• Employment: Despite robust job creation in November, unemployment rose to 6.8% – the highest in eight years, highlighting underlying labor market challenges.
• Inflation: The inflation rate stabilized at the BoC’s 2.0% target, offering some respite amid broader economic concerns.

“Economic resilience is not about avoiding challenges but adapting swiftly to change and uncertainty.”

Global Trade and Economic Pressures

External factors played a significant role in shaping December’s FX trends: U.S. Trade Tariffs: The looming threat of a 25% tariff on Canadian imports by the U.S. added pressure to the CAD and posed risks to Canada’s export-driven economy. G10 Monetary Policies: Central banks in major economies enacted significant policy changes in December, creating increased volatility in FX markets and influencing CAD valuation.

Closing Thoughts

As 2024 came to a close, the Canadian FX market reflected a mix of challenges and opportunities. The BoC’s proactive rate cuts underscored its commitment to economic stability, while external uncertainties emphasized the need for cautious optimism. With 2025 on the horizon, traders and investors must remain vigilant, navigating the evolving landscape with a keen eye on domestic and global developments.

Stay tuned for more updates and insights as we track the key trends shaping Canada’s economic and FX markets.