Canada dollar as Ivey PMI jumps

The Canadian dollar is steady today, trading at the 1.25 line.

Canada’s Ivey PMI for March was up sharply, rising from 60.6 to 74.2. This crushed the consensus estimate of 60.0, the highest level in more than 11 years. The strong reading shows that purchasing managers are feeling optimistic about economic conditions.

USD/CAD dropped to 1.2402 on Tuesday, its lowest level since November 2o21. The Canadian currency has managed to hold its own against the greenback, despite being sensitive to risk, at a time of turbulence in the markets. This is in large part to surging commodity prices, which have boosted the Canadian dollar.

Brainard says Fed prepared to tighten even further

Fed President Lael Brainard made some hawkish remarks on Tuesday, which sent US yields higher. Brainard said that the Fed could start lowering its balance sheet, known as quantitative tightening, as early as April. Brainard also said that the Fed was prepared to take “strong action” to combat high inflation. Brainard’s comments were noteworthy in that Brainard is considered one of the most dovish FOMC members. The Fed is clearly in hawkish mode, and Esther George, another Fed president, said that 50-basis point hikes would be an option that the Fed would “have to consider”.

The Fed has traditionally raised or lowered interest rates in increments of 25 basis points, but Fed Chair Powell has hinted that he could resort to 50-bps salvos in order to curb inflation, which is running at 40-year highs. The Fed continues to sound more hawkish, and its stance of inflation being transient seems in the distant past, as the Fed finally raised rates in March and is expected to continue hiking at most, if not all of the remaining policy meetings this year. If the Fed does opt to raise rates by 50 bps next month, I would expect the move to provide a strong boost to the US dollar.

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USD/CAD Technical

• USD/CAD faces resistance at 1.2595 and 1.2676
• There is support at 1.2432 and 1.2350

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