USD/CAD – Canadian dollar gains ground as investors expect dovish Fed statement

USD/CAD has posted losses in the Wednesday session. Currently, the pair is trading at 1.3225, down 0.34% on the day. On the release front, there are no Canadian releases. In the U.S., the highlight is the Federal Reserve rate statement. With the Fed expected to remain on the sidelines, investors will be focusing on the rate statement, which is expected to be dovish in tone. The ADP nonfarm employment change fell to 213 thousand, but managed to beat the forecast of 180 thousand. On Thursday, the U.S. publishes Employment Cost Index and unemployment claims. Canada releases monthly GDP, which is expected to decline by 0.1%.

Will we see a breakthrough in the nasty U.S-China trade spat? The two largest economies in the world have imposed tariffs on each other’s products and triggered a global trade war. Investors are hopeful that a second round of talks between Chinese and U.S. officials, which start on Wednesday, will narrow the gaps between the sides. The trade war has taken a toll on the Canadian economy, which is heavily reliant on exports. U.S. Treasury Secretary Steven Mnuchin said he expects significant progress in the talks, but warned that the sides would have to tackle “complicated issues”. Tensions between China and the U.S. have escalated in recent weeks, with the U.S. Justice Department filing criminal charges against Huawei, a Chinese technology company. The U.S. is also trying to extradite a senior Huawei executive from Canada, which has caused a serious diplomatic crisis between Canada and China.

The Federal Reserve was aggressive in 2018, raising rates by a quarter-point on four occasions. With a nasty trade war dampening global economic growth, it is clear that the Fed will ease up on monetary policy this year. But, by how much? There are a various answers, depending on who you ask. The markets are not expecting any increases this year, while the Federal Reserve continues to stick with a forecast of two hikes. The Congressional Budget Office has also weighed in, saying that it expects further rate increases this year. Investors will be combing through the rate statement, looking for clues as to the timing of the next rate hike.

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USD/CAD Fundamentals

Wednesday (January 30)

• 8:15 US ADP Nonfarm Employment Change. Estimate 180K. Actual 213K
  
• 10:00 US Pending Home Sales. Estimate 0.8%
• 10:30 US Crude Oil Inventories. Estimate 3.0M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <2.50%
• 14:30 US FOMC Press Conference

Thursday (January 31)

• Canadian GDP. Estimate -0.1%
• Canadian RMPI. Estimate 3.9%
• 8:30 US Employment Cost Index. Estimate 0.8%
• 8:30 US Unemployment Claims. Estimate 215K

*All release times are EST

*Key events are in bold

USD/CAD for Wednesday, January 30, 2019

USD/CAD, January 30 at 8:35 EST

Open: 1.3270 High: 1.3282 Low: 1.3218 Close: 1.3225

USD/CAD Technical

USD/CAD has posted slight losses in the Asian and European sessions

• 1.3200 has weakened in support following losses by USD/CAD on Tuesday
• 1.3290 is the next resistance line
• Current range: 1.3200 to 1.3290

Further levels in both directions:

• Below: 1.3200, 1.3125 and 1.3049
• Above: 1.3290, 1.3383, 1.3445 and 1.3552

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