-
The Canadian Dollar extends its gains for a third consecutive session, buoyed by firm oil prices and a softening US Dollar.
-
Canada’s Manufacturing PMI edged up to 46.1 in May, while US factory activity contracted more sharply.
-
Markets now see a 75% probability that the Bank of Canada will keep rates steady at 2.75% on Wednesday, with attention turning to inflation outlooks.
The Canadian Dollar (CAD) extended its winning streak against the US Dollar (USD) for a third consecutive day on Monday, supported by rising oil prices and continued weakness in the Greenback.
Canada’s latest PMI data provided further backing for the Loonie, with factory activity showing a modest improvement, though it remained in contraction. Meanwhile, mixed US manufacturing figures weighed on the US Dollar, keeping the USD/CAD pair under pressure below the 1.3700 level. At the time of writing, the pair is trading near 1.3698 during the North American session.
The S&P Global Canada Manufacturing PMI increased to 46.1 in May from 45.3 in April, marking the sector’s fourth straight month of contraction. Output and new orders continued to decline sharply. On the other hand, the US ISM Manufacturing PMI slipped to 48.5 in May from 48.7, missing market expectations and signaling the steepest contraction since November 2024. The data reflected ongoing economic uncertainty and persistent cost pressures, partly fueled by the Trump administration’s volatile trade policies.
Looking ahead, the Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday. While markets had previously anticipated a rate cut, stronger-than-expected Q1 GDP growth of 2.2% has shifted expectations toward maintaining the current 2.75% policy rate. According to Reuters, investors now assign about a 75% probability that the BoC will keep rates unchanged.
Scotiabank’s Derek Holt has strongly opposed any easing, emphasizing in a recent post titled “No way the BoC should be cutting any time soon, if at all” that core inflation remains stubbornly high even before the full impact of tariff-related supply shocks is felt. “Despite modest slack, other factors are keeping core inflation sticky and elevated,” he remarked.
