The Canadian dollar has reversed directions on Tuesday and is in negative territory. Currently, USD/CAD is trading at 1.2582, up 0.30%.
It has been a frigid summer for the Canadian dollar, as USD/CAD has jumped 4.3% since June 1. The 1.20 level seems like a distant memory for the Canadian currency, which is within striking distance of the 1.26 line. The Bank of Canada was the first major central bank to tighten policy and oil prices have moved higher in recent months, but these factors have not been enough to prop up the wobbly Canadian dollar.
This week, the sell-off in China’s stock markets has dampened risk sentiment, and real US bond yields have declined ahead of the FOMC policy meeting on Wednesday. This has raised speculation that global growth could be facing headwinds, which has soured sentiment towards the commodity-based Canadian dollar.
Markets eye Canada CPI, FOMC
Canada releases CPI on Wednesday, with a consensus of 3.2% for June. This is lower than the May reading of 3.6%. With US inflation well over the Fed target of 2%, the markets and the Bank of Canada will be closely following to see if Canada’s inflation is also heading higher.
The FOMC policy meeting is the key event of the week and marks the last meeting before the Jackson Hole Symposium in August and the September policy meeting. The markets are becoming restless, looking for the Fed to provide some guidance, preferably a timeline, as to a taper of asset purchases, given the US economy’s impressive recovery. Investors will be looking for more from the Fed meeting than another declaration that inflation is transitory. Nobody is really expecting that the Fed will oblige with a timeline of a taper, but hints about a potential taper would likely provide the US dollar with some much-needed support.
- USD/CAD faces resistance at 1.2777. Above, there is resistance at 1.2916
- On the downside, there is support at 1.2459. Below, there is support at 1.2352