Canadian Dollar consolidates loses as US economy shines
- Canadian Dollar keeps losing ground as US data beats expectations.
- Strong US economic outlook, tight labour market put Fed easing hopes into question.
- Fed Mester hints at rate cuts in 2024 but she does not specify any timing.
The Canadian Dollar (CAD) is being sold for the second day in a row on Tuesday as the Greenback consolidates gains, buoyed by strong US macroeconomic data. The strong rebound in February’s US Factory orders and the higher-than-expected JOLTS Job Openings add to evidence of a strong US economy and put the Federal Reserve’s (Fed) near-term easing plans into question.
Tuesday’s data confirms Monday’s picture of a strong manufacturing sector combined with a tight labour market. This “no-landing” scenario provides fresh reasons for Fed hawks to keep borrowing costs higher for longer and is pushing up US Treasury yields.
Fed Cleveland President Loreta Mester assured that the bank will cut rates in 2024 although she added that they might need more time to confirm that inflation trends are on the right pace. Later today San Francisco Fed CEO, Mary Daly, another hawk, will meet the Press. The highlight of the week, however, will be Investors will be waiting for Friday’s Nonfarm Payrolls Report.
Daily digest market movers: USD/CAD consolidates gains as US data casts doubt on Fed easing plans
- Canadian Dollar has lost 0.3% in the last two days with the rally in Oil prices keeping the Loonie from further depreciation.
- Fed’s Mester assured that she expects rate cuts this year although she discard any move at May’s meeting.
- US Factory Orders increased 1.4% in February, following a 3.8% decline in January and beating expectations of a 1% gain.
- At the same time, the US Bureau of Labor Statistics revealed that JOLTS Job Openings increased by 8.756 million in February from 8.748 million in January, above the market consensus of 8.74 million.
- On Monday, the US ISM Manufacturing PMI increased to 50.3 in March from 47.8 in February, beating market expectations of a 48.4 reading.
- Prices Paid in the manufacturing sector have surged to 55.8, their highest level since July 2022, and a positive contribution to inflationary trends.
- Oil prices have reached levels beyond $85 for the first time since October. This is cushioning the Canadian Dollar’s reversal.
Canadian Dollar price this week
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this week. Canadian Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.24% | 0.54% | 0.37% | 0.35% | 0.14% | 0.40% | 0.59% | |
| EUR | -0.24% | 0.30% | 0.13% | 0.11% | -0.10% | 0.15% | 0.35% | |
| GBP | -0.54% | -0.30% | -0.17% | -0.18% | -0.41% | -0.14% | 0.05% | |
| CAD | -0.38% | -0.12% | 0.16% | -0.03% | -0.24% | -0.01% | 0.21% | |
| AUD | -0.35% | -0.11% | 0.19% | 0.01% | -0.21% | 0.04% | 0.25% | |
| JPY | -0.14% | 0.13% | 0.41% | 0.25% | 0.25% | 0.27% | 0.45% | |
| NZD | -0.40% | -0.13% | 0.17% | 0.00% | -0.04% | -0.25% | 0.20% | |
| CHF | -0.60% | -0.34% | -0.04% | -0.21% | -0.23% | -0.46% | -0.21% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Technical analysis: The USD has scope for rally to 1.3615 resistance area
The USD/CAD bounced up on Monday and is gaining bullish traction amid the favorable fundamental landscape. With US Treasury yields healing north, USD’s bearish attempts are expected to remain limited.
The pair remains moving inside a slightly bullish channel with the previous resistance at 1.3565 providing support. The next upside target is the resistance area at 1.3615, the 61.8% Fibonacci retracement of the late 2023 decline at 1.3630, and the channel top at 1.3635. Below 1.3565, the next support is 1.3520.
USD/CAD 4-Hour Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.