The Canadian Dollar is continuing to decrease in value as the USD strengthens against all other currencies. This week, the CAD has lost around 1.23%, marking its worst weekly performance in nearly a year. The USD/CAD pair is steadily moving in a bullish direction, with its sights set on 1.3770 and 1.3845.
On Friday, the Canadian Dollar (CAD) is experiencing a decline for the third consecutive day, putting it on pace to record its poorest weekly showing in nearly a year. Meanwhile, the US Dollar is gaining strength, driven by increased US yields, as investors reevaluate the timeline and magnitude of the US Federal Reserve's (Fed) easing measures.
The Michigan Consumer Sentiment Index showed a decline that was worse than predicted, while the Consumer Inflation Expectations saw a slight increase. Despite this data, the US Dollar did not experience any negative impact and actually received further backing due to the European Central Bank's (ECB) dovish statement on monetary policy.
Boston Fed President Susan Collins also hinted at a delay in the start of monetary easing, suggesting September as a possible start date. She also mentioned the potential for only two cuts in 2024, speaking on Friday.
Moreover, the Canadian Dollar is expected to experience a 1.25% drop this week, marking its poorest weekly performance since May 2023.
According to the US Michigan Consumer Sentiment Index, there was a drop from 79.4 in March to 77.9 in April, adn the expected reading of 79.0 was not met by the market.
Furthermore, the 5-year Inflation Expectations for consumers at the University of Michigan have increased from 2.8% to 3% since April. The US 10-year yields have decreased from their peak, but they are still above the significant level of 4.5%, which is the highest they have been since last November.
According to recent reports, investors have reduced their predictions for the Federal Reserve's easing by 60 basis points to be implemented in 2024, compared to the previous forecast of 150 basis points in January. The initial decrease in interest rates is now anticipated to occur in September. As a result, this development is bolstering the strength of the US Dollar.
In a statement, Austan Goldsbee, the President of the Chicago Fed, states that there may be further actions required by the bank to control inflation and that the balance between price levels and employment will be a significant concern in 2024.
The press will be meeting with Fed members Bostic and Daly, who are both known for their hawkish views. It is expected that they will give additional backing to the USD later today.
USD/CAD Bullish Trend Targets 1.3770 and 1.3845
The US Dollar is currently experiencing a robust bullish trend, as it has recently surpassed the channel top of the previous two months with no indication of a change in direction.
The 1.3770 resistance area experienced a bullish surge due to the reverse trendline, reaching a high on Friday. While the USD/CAD pair is overbought, it has not reached extreme levels. The broken channel's measured target is at the 1.3845 mark, which was previously the mid-November high. In the event of a decrease, support levels can be found at 1.3680-1.3660 and 1.3545.
FAQS about the Federal Reserve
The Federal Reserve (Fed) is responsible for shaping the monetary policy in the United States, with the main objectives being to maintain price stability and promote full employment. The primary means of achieving these goals is through the adjustment of interest rates.
In cases where inflation exceeds the target of 2%, the Fed raises interest rates, leading to an increase in borrowing costs across the economy. This results in the appreciation of the US Dollar (USD) as it becomes a more appealing destination for global investors to invest their funds.
However, if inflation falls below 2% or the Unemployment Rate is high, the Fed may reduce interest rates in order to stimulate borrowing, which has a dampening effect on the value of the US Dollar.