The Canadian dollar is falling after the Bank of Canada decision for all the wrong reasons

<p>The Canadian dollar is dropping on the Bank of Canada rate decision for the usual reasons. It's not because the Bank of Canada removed a line about possibly hiking rates — the market has known for a long time that rate hikes were done.</p><p>So why is the Canadian dollar falling?</p><p>It's because the Bank of Canada wasn't dovish enough. </p><p>What? Isn't that the opposite of how markets usually work?</p><p>It is but it reverses when central banks miss a turning point. Canada's economy is struggling, you can see it from the BOC's own forecast of 0.8% GDP growth this year (following two flat quarters in Q3/Q4). Canada is in a recession and it will only get worse as mortgage resets hit. You can see it in <a href="https://www.forexlive.com/news/boost-from-canadian-consumers-wont-last-cibc-20240119/" target="_blank" rel="follow">consumer spending</a>.</p><p>The market is telling the Bank of Canada that it should be cutting rates because it's now the growth side of the equation that's problematic, not inflation.</p><p>Instead the Bank of Canada is focused on wage growth — possibly is the single-most-lagging economic indicator. Clearly Macklem is feeling burned from a series of too-low forecasts on inflation and is like a general fighting the last war. </p><p>The market is saying that Canada is heading for a needlessly weak economy in 2024/25 that could be remedied with gradual rate cuts now. Instead, the Canadian economy will fall further and the Bank of Canada will ultimately cut to lower rates. That's why the loonie is weakening today.</p>

This article was written by Adam Button at www.forexlive.com.