USD/CAD – Canadian Dollar Slips to 8-Week Low on US Rate Expectations

USD/CAD continues to head lower in the Friday session. Currently, the pair is trading at 1.3420. On the release front, there are no Canadian releases on the schedule. In the US, today’s highlight is ISM Manufacturing PMI, which is forecast to remain unchanged at 56.5 points. The markets will be listening closely as four FOMC members deliver remarks on Friday, including Federal Reserve Chair Janet Yellen.

It’s been a week to forget for the Canadian dollar this week, as USD/CAD has gained 2.2 percent. The pair has punched above the 1.34 line, as the Canadian dollar has slipped to its lowest level since January 4. Market sentiment continues to heat up regarding a Fed rate hike. Federal Reserve policymakers continue to sound hawkish about a rate move on March 15, when the Fed next meets for a policy meeting. Earlier in the week, FOMC members William Dudley and John Williams both hinted at an imminent hike by the Fed. Dudley said the case for a hike is compelling, while Williams noted that a rate increase will be up for “serious consideration” at the March policy meeting. The markets are taking these statements at face value, as the odds of a March move have increased dramatically. The likelihood of a rate move has soared to 80%, compared to 33% just a few days ago. Why the huge jump in odds? One reason is that policymakers are now saying they don’t plan to wait for Donald Trump to outline tax reform or other economic packages before making a monetary move. This is a significant departure from a few weeks ago, when the Fed sent out signals that it would stay on the sidelines until it had a clearer picture of the economic stance of the new administration.

There were no surprises from the Bank of Canada this week, which held rates at 0.50%, where they have been pegged since July 2015. However, the rate statement expressed concern, stating that the economy faces “significant uncertainties”, including a lack of clarity over Donald Trump’s economic agenda. Trump has called for the NAFTA trade agreement to be scrapped, although he has since backtracked and said that he only wanted to “tweak” the provisions that affect Canada-US trade. Still, Trump’s protectionist leanings could hurt the Canadian economy, which sends 80% of its exports to its southern border. Even if NAFTA is left alone, the US could slap import duties on Canadian products, which would have negative ramifications for the Canadian economy.

USD Surges as Markets Back March Fed Rate Hike

Bank of Canada Kept Rate Unchanged at 0.50%

USD/CAD Fundamentals

Friday (March 3)

• 10:00 US ISM Manufacturing PMI. Estimate 56.5
• 10:15 US FOMC Member Charles Evans Speech
• 12:15 US FOMC Jerome Powell Speech
• 13:00 Federal Reserve Chair Janet Yellen Speech
• 13:00 US FOMC Member Stanley Fischer  Speaks

*All release times are GMT

*Key events are in bold

USD/CAD for Friday, March 3, 2017

USD/CAD March 3 at 7:40 EST

Open: 1.3389 High: 1.3430 Low: 1.3373 Close: 1.3416

USD/CAD Technical

• USD/CAD was flat in the Asian session and has edged higher in European trade
• 1.3371 is providing support
• 1.3461 is the next resistance line

Further levels in both directions:

• Below: 1.3371, 1.3253, 1.3120 and 1.3003
• Above: 1.3461, 1.3551 and 1.3672
• Current range: 1.3371 to 1.3551

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Friday session. Currently, long positions have a strong majority (68%), indicative of trader bias towards USD/CAD continuing to move higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.