Canadian Dollar struggles for direction following earlier YTD lows
- Canadian Dollar has pared losses on Thursday and is practically flat on the daily chart.
- Mixed US PPI figures and dovish Fed comments have eased risk aversion.
- USD/CAD remains biased lower, with 1.3660 likely to challenge bears.
The Canadian Dollar (CAD) is practically flat Thursday after having retraced previous losses as softer US data and comments from Fed policymakers have kept hopes of Fed easing alive. The Loonie, however, remains bearish after having depreciated more than 1% in the last two weeks.
The US Producer Prices Index (PPI) has shown mixed data, with the headline figures accelerating below expectations but still offering hotter-than-expected core inflation. These figures together with some dovish remarks by Fed policymakers have kept hopes of Fed cuts alive, easing the risk-averse sentiment after Wednesday's Consumer Prices Index (CPI) data.
NY Fed CEO John Williams has shown a dovish profile, stating that there will be a need to cut rates. Somewhat later, Boston Fed President, Susan Collins has shown confidence that the inflation will continue to moderate.
Daily digest market movers: USD/CAD keeps marching higher as Fed cut hopes wane
- Canadian Dollar bounces up from to fresh five-month lows on Thursday as soft US data and dovish Fed rhetoric trigger some profit-taking on the US Dollar
- US PPI slowed down to 0.2% in March, from 0.6% in February, although the yearly rate bounced up to 2.1% from 1.6% in the previous month. Core PPI accelerated to a 2.4% yearly rate from 2.1% in February, above expectations of a 2.3% reading.
- Fed's Williams and Collins have shown confidence that inflation will hit the 2% target leaving options of rate cuts in 2024 alive and easing bullish pressure on the US Dollar.
- On Wednesday, US CPI inflation accelerated at 0.4% pace in March and 3.5% YoY, beating expectations of 0.3% and 3.2%, respectively. Risk aversion sent US yields and the US Dollar surging.
- Treasury yields for the US 10-year remain ready above the key 4.5% level. The 2-year yield is near 5% after having rallied about 40 basis points in three days. This will keep US Dollar's downside attempts limited.
- On Wednesday, BoC left interest rates unchanged at 5%, but Governor Macklem revealed that committee discussed possibility of cutting rates, adding negative pressure to CAD.
- Futures market bets for Fed rate cuts in June have dropped to 20% from levels above 50% before US CPI report, according to CME Group’s FedWatch Tool
Canadian Dollar price this week
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this week. Canadian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.92% | 0.52% | 0.53% | 0.41% | 0.95% | 0.05% | 0.65% | |
| EUR | -0.93% | -0.39% | -0.39% | -0.51% | 0.03% | -0.88% | -0.26% | |
| GBP | -0.53% | 0.41% | 0.01% | -0.11% | 0.43% | -0.47% | 0.13% | |
| CAD | -0.55% | 0.39% | -0.02% | -0.13% | 0.41% | -0.49% | 0.12% | |
| AUD | -0.42% | 0.50% | 0.10% | 0.11% | 0.53% | -0.36% | 0.21% | |
| JPY | -0.96% | -0.03% | -0.42% | -0.42% | -0.55% | -0.89% | -0.30% | |
| NZD | -0.05% | 0.88% | 0.48% | 0.49% | 0.37% | 0.91% | 0.59% | |
| CHF | -0.67% | 0.26% | -0.13% | -0.13% | -0.26% | 0.29% | -0.60% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Technical analysis: USD/CAD breaks above channel top, next resistance at 1.3740
The US Dollar has broken above the last two months’ channel top as the strong US inflation data dampened hopes of a rate cut in June. Bulls have taken control, extending their rally to levels near 1.3700 with no sign of a bearish reversal in sight.
The reverse trendline is acting as support, confirming the bullish trend. The next upside targets are 1.3740 and 1.3770. The measured target of the broken channel is the mid-November high at 1.3845. Supports are the mentioned channel top, 1.3660 and 1.3545.
USD/CAD Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
