07:57 AM EDT, 10/04/2024 (MT Newswires) -- In September the Canadian dollar (CAD or loonie) weakened marginally against the US dollar (USD) in terms of London closing rates with USD/CAD rising from 1.3496 to 1.3510, noted MUFG.

The Bank of Canada at its meeting in September cut the key policy rate by 25bps to 4.25%, the third cut in consecutive meetings.

The Canadian dollar was largely unchanged against the US dollar in September and was the worst-performing non-USD G10 currency, stated the bank. As expected, the BoC cut rates by

25bps but the communication from Caanda's central bank leaves open the future pace of easing with incoming economic data determining the pace of monetary easing.

The OIS market out to September 2025 is currently priced for the United States Federal Reserve and the BoC to deliver roughly the same amount of easing, said MUFG. Over the final two meetings of the year, similar to the Fed, the BoC is expected to cut by 50bps at one of those meetings.

The data the bank thinks backs up the scope for a larger cut, especially after the Fed cut by 50bps.

The Canadian jobs market continues to loosen and the latest data saw the unemployment rate increase to a new cyclical high of 6.6%, the highest since September 2021 and 1.8ppts above the cyclical low. This will inevitably dampen wage pressures going forward and while Canadian companies are still hiring, the pace of hiring isn't enough to absorb new entrants, according to the bank.

MUFG suspects the Fed may end up delivering rate cuts moderately faster than the BoC which explains the bank's "modest" CAD appreciation profile.

A Donald Trump US presidential election victory would certainly see USD/CAD rebound to higher levels than implied above and a push for changes to the USMCA trade deal could create added

uncertainty although the formal date for renewal isn't until July 1, 2026.

The announcements of growth-supportive policy measures in China should also be supportive for commodity-based currencies such as CAD, added MUFG.