USD / CAD retreats to 1.2520 after hitting monthly highs around 1.2600.
The USD / CAD pair falls due to the general weakness of the US dollar amid falling US Treasury yields. According to BBH, fed funds futures forecast a 66% takeoff probability in the second quarter, while a third quarter rise is fully taken into account.
Bank of Canada Tiff Macklem: “The sluggish economy is not yet absorbed, but we are getting closer.”
After hitting four-week highs, the USD / CAD pair plunges for the second day in a row, down 0.18%, trading at 1.2524 during the day at the time of writing. The drop is mainly driven by a weak US dollar, triggered by weaker-than-expected consumer sentiment at the University of Michigan, which fell to a 10-year low in November amid concerns about the pace of sales. Additionally, a drop in US bond yields affected demand for the US dollar, which is in defensive mode at the beginning of the week.
Meanwhile, the oil price Crude fell as investors awaited the next White House decision on high gasoline prices. Speculation is mounting that US President Joe Biden will release supplies from the Strategic Petroleum Reserve (SPR), which could weigh on the Canadian dollar pegged to oil and commodities, potentially improving prospects for the USD / CAD pair.
The week of the Fed’s bond cut begins
According to Brown Brothers Harriman (BBH), in a note to clients, “Last week, the New York Fed released an updated purchasing schedule that will result in total purchases of $ 70 billion in USTS and $ 35 billion. MBS dollars this month, 15 billion less than the peak of quantitative easing. How the bonds trade this week will be important in understanding the potential impact of the downsizing. He further added that at this rate, QE will end in June 2022.
Additionally, BBH added that “Fed funds futures still see nearly two-thirds of the chances of takeoff in the second quarter, which seems too early, while the takeoff in the third quarter is fully accounted for. Strong data and rising inflation should keep upward pressure on US rates. “
At the time of writing, Tiff Macklem, governor of the BoC, said that the economic slowdown in the Canadian economy has not yet been absorbed, but that “we are getting closer,” adding that QE is no longer necessary. In addition, he added that if the BoC were wrong about sustainable inflation, it would “adjust.”
That said, the USD / CAD pair could consolidate, as investors say the Bank of Canada (BoC) is expected to raise rates before the Federal Reserve, but a change in the pace of the Fed’s QE cut could slow the bond spread. between the United States and Canada, favoring the US dollar in the medium term.
By Christian Borjon Valencia, FXStreet
Christian Borjon, Forex News Editor at FX Street, has been an experienced Forex and CFD commodity trader for six years. He worked at CITI Banamex (CITI branch in Mexico) as a Forex Market Maker for a year and a half. Christian has a UA degree in Business Administration from C, Mexico. Like many other traders, he began taking a course and learning the hard way. Christian discovered it later and became obsessed with fundamental analysis and macroeconomics, as well as its influence on financial markets.
The opinions expressed here are solely those of the author and do not necessarily reflect the views of Forex Quebec. Every investment and business move carries risk, you should do your own research when making a decision.
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell currency or CFD contracts. Although the information contained in this document has been taken from sources considered reliable, the author does not guarantee its accuracy or completeness, and does not assume responsibility for any direct, indirect or consequential damages that may result from the fact that someone trusts such information.
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