- The Canadian Dollar has seen little but downside this week.
- A pivot to market Fed expectations is sending investors into the US Dollar.
- Crude Oil bids try to recover, limiting Loonie losses for Friday.
The Canadian Dollar (CAD) is in the red again this week, set to close down or flat for the fifth trading day in a row, its worst day-on-day performance since April.
Canada has seen a thin showing on the economic calendar all week, and next week is set for more of the same as broader markets focus on the US Dollar (USD) and investors get pushed around by central bank expectations.
Daily Digest Market Movers: Canadian Dollar recedes as traders pick the Greenback
The CAD is trying to reverse a week of losses, shedding 1.5% against the USD.
Risk aversion appears to be the general tone to overall market themes, sending the USD higher across the board.
US Michigan Consumer Sentiment Index for November dropped back to 60.4 from 63.8.
UoM 5-Year Consumer Inflation Expectations ticked up from 3% to 3.2%.
Federal Reserve Chairman Jerome Powell’s hawkish showing yesterday continues to bleed through markets as investors prove jittery around inflation.
Crude Oil is seeing soft gains for Friday, helping to support the Loonie and limit CAD losses.
Next Tuesday sees US Consumer Price Index (CPI) inflation figures that should electrify Greenback traders.
Technical Analysis: Canadian Dollar drops to 1.3850 against US Dollar
The USD/CAD has climbed 1.65% bottom-to-top this week, sending the Loonie-Greenback pair into familiar highs and etching in a Friday peak of 1.3850.
The pair kicked off the week’s trading with a clean bounce from the 50-day Simple Moving Average (SMA) near 1.3630, and the week’s price action has been notably one-sided the entire way through.
Monday’s low-side rebound also saw a rejection from a rising trendline from July’s swing low into the 1.3100 region.
The near-term ceiling for USD/CAD bulls to beat will be the 1.3900 handle, a technical barrier that rejected the pair at the beginning of the month.
USD/CAD Daily Chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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