USD to CAD Movement Amidst External Factors
The USD to CAD saw an upswing on Wednesday, rebounding from a notable drop the day prior. The Canadian Dollar was influenced by falling gold and silver prices, though buoyed by resilient crude oil prices. This movement came in the wake of a drastic fall in the U.S. JOLTS job openings data for July, which hit a 2-1/2 year low, sending the U.S. Dollar on one of its steepest monthly declines. Eyes are now on the upcoming monthly non-farm payrolls report this Friday, a significant data point for U.S. employment metrics.
U.S. Outlook: Treasury Yields and Federal Reserve’s Stance
Market participants are closely monitoring U.S. Treasury yields. The two-year yield, closely tied to anticipated monetary policy shifts, touched 4.871% before steadying around 4.9%. Meanwhile, the 10-year yield lingered near 4.13%. Given the recent data and market sentiment, there’s an 86.5% chance the Federal Reserve will keep rates unchanged on September 20. However, the November meeting paints a more ambiguous picture, with rate hike probabilities nearing a toss-up. Federal Reserve Chair Jerome Powell has hinted at possible tightening, emphasizing inflationary concerns.
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Canada’s Economic Health and BoC’s Decisions
All eyes are on Canada’s impending second-quarter GDP report. Predictions indicate a significant deceleration, with growth expected at 1.1%, a drop from the previous quarter’s 3.1%. This rate is also lower than the Bank of Canada’s (BoC) 1.5% projection. Inflation is rising, but the slowdown may prompt the BoC to pause on interest rate hikes. However, their decisions remain contingent on fresh economic data, considering other variables like wildfires and civil strikes that might impact the figures.
Rate Trajectory for BoC
In July, the BoC raised its key rate to a 22-year high of 5%. Financial markets currently see a 70% likelihood of a pause in rate hikes this September. Yet, a tilt towards further tightening by year’s end is evident. Factors such as the dock workers’ strike and June’s GDP decline hint at the possibility of a negative GDP for Q3. If domestic demand remains robust, the BoC could still favor a rate hike in September.
Short-Term Forecast: Mixed Sentiment
The landscape suggests a bearish short-term sentiment for the U.S. Dollar against the CAD. Yet, evolving economic data from both nations will play a critical role in determining future currency movements and central bank decisions.
Technical Analysis
While the currency pair is trading just above the main support area of 1.3508 to 1.3495, it’s below the main resistance area of 1.3612 to 1.3654. Based on these metrics, the market sentiment appears to be cautiously bearish in the short term.
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