As the Bank of Canada prepares for its final interest rate decision of 2024, all eyes are on how it will impact the Canadian dollar. Here’s what you need to know:

• What’s Happening?
  The Bank of Canada is expected to cut its benchmark interest rate for the fifth time this year, potentially by 50 basis points. This aggressive rate-cutting cycle is aimed at tackling Canada’s slowing economy.
• Why It Matters
  A significant rate cut could weaken the Canadian dollar further, already hovering near 4.5-year lows. A weak loonie makes U.S. travel and imported goods more expensive, including fresh produce, which could push inflation higher.
• Diverging Policies
  Unlike Canada, the U.S. Federal Reserve is moving at a slower pace in cutting rates due to stronger economic conditions south of the border. This divergence is likely to continue, putting additional pressure on the loonie.
• Long-Term Outlook
  Economists predict the Canadian economy will rebound by late 2025 as the effects of these rate cuts begin to materialize. While the loonie may face challenges in the short term, stabilization is expected once policy rates between Canada and the U.S. align.

In conclusion, while immediate impacts on the loonie may feel challenging, the Bank of Canada’s actions aim to foster long-term economic recovery. Canadians should prepare for short-term price pressures but keep an eye on potential relief in the years ahead.

Blog inspired by Craig Lord, full article available at Bank of Canada readies for a rate cut. Why the loonie is bracing for impact