August is traditionally a quiet month for markets, with many traders and analysts taking summer vacations. This year followed suit, especially with the added distraction of the Paris Olympics. Thin holiday markets led to some sharp moves, particularly early in the month when fears of a hard landing for the US economy stirred things up. These concerns kept the US dollar index steady as traders anxiously awaited Fed Chair Jerome Powell’s Jackson Hole speech on August 20. His dovish comments triggered widespread calls for a 50 bp rate cut in September. The prospect of falling US interest rates, combined with rising Japanese rates, led to a rush out of the "carry trade," causing a surge in yen buying and US dollar selling, which rattled G7 FX markets in the typically quiet summer period. On the equity front, all eyes were on Nvidia (NVDA: Nasdaq) and its quarterly earnings, but despite 122% revenue growth, the results left traders underwhelmed. By month’s end, US employment data had overtaken inflation as the primary driver for markets.
The USD and Federal Reserve
The US dollar index (DXY) started the month at 104.22 and moved sideways in a narrow range between 101.96 and 103.34 until Powell’s Jackson Hole speech. Traders had been expecting a significant move following a much weaker-than-expected nonfarm payrolls report on August 2. There was even some wild talk of an emergency 50 bp rate cut before the next scheduled meeting. That didn’t materialize, but Powell didn’t disappoint. He essentially signaled the Fed’s fight against inflation was done and shifted focus to full employment—the other half of the Fed's dual mandate. With another weak employment report expected on September 6, traders are betting the Fed will kick off its latest easing cycle with a 25 bp rate cut at the September 18 meeting.
The Canadian Dollar and Bank of Canada
The Canadian dollar saw a steady climb through August, posting a gain of about 2.7% by month’s end. Not too shabby, but it still lagged behind the New Zealand dollar’s 5.7% surge and the Australian dollar’s 4.74% rise. The loonie's rally was driven by expectations of deeper and more aggressive Fed rate cuts, along with the unwinding of the carry trade that put pressure on the US dollar, particularly against the yen. Meanwhile, the Bank of Canada was widely expected to deliver a 25 bp rate cut on September 4, and they delivered, bringing the benchmark rate to 4.25%. With inflation seemingly under control, their focus has now shifted to economic growth, signaling more rate cuts could be on the horizon.
Oil Prices
Oil tried to make a comeback in early August, with WTI climbing to $80.15/b, only to give it all back and fall to $71.50 by August 21. Supply disruptions from Libya due to political turmoil and lower-than-expected US crude inventories gave oil a short-term boost, but concerns about China’s sluggish economic growth quickly erased those gains.
Bank 2024-USD/CAD Q3 2024-USD/CAD Q4
Scotiabank* 1.3800 1.3600
BMO 1.3790 1.3950
CIBC 1.3900 1.3800
TD Bank* 1.3700 1.3800
National Bank 1.3700 1.4100
*Forecast is based on last month. Forecast Table is for mid-market rates, and subject to change anytime.
