- Canadian Dollar falls back as broader markets turn into the US Dollar.
- Canada GDP flattens as economy lags, odds of future rate cuts beginning to rise.
- Fed’s Wednesday rate call has markets twisting, USD is Tuesday’s best performer.
The Canadian Dollar (CAD) has seen a quick end to its almost-rally on Monday, getting pushed back down and tipping into a fresh twelve-and-a-half-month low against the US Dollar (USD).
August’s Canada Gross Domestic Product (GDP) printed flat on Tuesday, missing the forecast of 0.1% and holding flat against July as Canadian economic growth stalls out.
Markets are turning broadly risk-off as investors jump back into the USD ahead of Wednesday’s Federal Reserve (Fed) rate call. While no rate moves are expected from the Fed this week, odds are increasing of one last rate hike in December before 2023 closes out.
Daily Digest Market Movers: Canadian Dollar sees an early failure in recovery rally after market sentiment rug pull
- CAD bulls couldn’t extend Monday’s rebound into a second day as broad market risk appetite evaporates.
- USD is the largest market gainer for Tuesday, Dollar Index (DXY) climbs almost a full percent into 106.80 from Tuesday’s bottom of 105.90.
- Canadian GDP came in flat, missing expectations as Canadian manufacturing sectors chalk in a fifth straight month of growth declines, with notable losses in agriculture due to dry conditions in Western Canada.
- Odds of a rate cut in Q2 next year are rising as the Canadian economy shows deeper cracks.
- Fed’s rate call on Wednesday to be the major market focus mid-week, investors beginning to price in one more 25-basis-point rate hike from the FOMC in December.
- Bank of Canada (BoC) Governor Tiff Macklem will be squeaking in under the radar tomorrow, due to finish out day two of testifying before the Canadian government’s banking and finance oversight committee.
- BoC Governor Macklem day one highlights here.
USD/CAD Technical Analysis: Canadian Dollar can’t find strength to fight off US Dollar
The USD/CAD is heading back toward 1.3900 in Tuesday trading as the US Dollar sees a broad-market resurgence.
The USD/CAD kicked into an intraday low of 1.3813 Tuesday morning before the Greenback came roaring back, sending the USD/CAD into a fresh twelve-and-a-half month high above 1.3880.
The pair is vaulting off the 50-day Simple Moving Average (SMA) lifting into 1.3850, with the 200-day SMA building out a price floor from 1.3770.
Technical resistance to the topside is looking increasingly thin, with the only notable sticking point sitting at 1.3977, 2022’s annual high set back in October of last year.
USD/CAD Daily Chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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