On Friday, the Canadian Dollar (CAD) exhibited stability against the US Dollar (USD), with the USD/CAD pair trading near the 1.4100 level. This occurred as the Greenback recovered from a brief dip in momentum, which followed dovish statements from New York Federal Reserve President John Williams. Williams articulated that a near-term rate cut remains a possibility, acknowledging that while inflation progress has stalled, he anticipates price growth will revert to the 2% target by 2027. He further observed a cooling in economic activity and a gradual easing in the labor market, with employment facing more pronounced downside risks. Williams also suggested that recent tariff measures, though contributing to price pressures, are unlikely to cause sustained inflation, and reiterated that monetary policy retains a modestly restrictive stance.
Subsequent to Williams’ remarks, expectations for a rate cut significantly intensified, with the CME FedWatch Tool now indicating a nearly 74% probability of a December cut, a substantial increase from approximately 31% earlier in the day. Other Federal Reserve officials provided a range of perspectives, generally leaning towards caution. Boston Fed President Susan Collins expressed an expectation for eventual rate reductions but maintained reluctance to act prematurely while inflation remains elevated, describing current policy as “mildly to moderately” restrictive. In contrast, Fed Governor Stephen Miran advocated for a “forecast-dependent rather than data-dependent” approach and affirmed his support for a 25 basis-point reduction if his vote were pivotal.
Conversely, Dallas Fed President Lorie Logan contended that the Fed should maintain steady rates temporarily to more accurately gauge the degree of policy restraint, asserting that another cut in December would be difficult to justify. She reiterated concerns that inflation persists at too high a level, despite the labor market trending towards a better balance.
Concurrently, Canadian economic data released earlier on Friday revealed that Retail Sales declined by 0.7% in September, aligning with market expectations and reversing the 1% gain recorded in August. Statistics Canada attributed this downturn primarily to a 2.9% slide in motor vehicle and parts dealerships, driven by a 3.6% fall in new car sales. In terms of volume, overall Retail Sales decreased by 0.8%. Retail Sales excluding automobiles, however, saw a 0.2% increase, exceeding expectations for a 0.5% drop, although this was still lower than the 0.8% rise observed in August.