Fundamental Analysis

Canadian Dollar Under Pressure Ahead of BoC Decision


The Canadian dollar continues to lose ground this week, and has moved lower in the Wednesday session. Currently, USD/CAD is trading at 1.2701, up 0.21% on the day. On the release front, the Bank of Canada will set the benchmark rate and also release its quarterly monetary policy report. In the US, we'll get a look at durable goods reports and New Home Sales. On Thursday, the US releases unemployment claims and Pending Home Sales.

The Canadian dollar slipped 1.3 percent last week against the greenback, and the downward trend has continued this week. Currently, the currency is at its lowest level since mid-August. Will the BoC rate decision end the slide? The markets are not expecting any move at the Wednesday meeting, and only a 33% chance of a rate hike by the end of 2017. If, as expected, the Federal Reserve raises rates in December, the BoC will be under pressure to keep pace and also hike rates.

Will Janet Yellen bid adieu to the Federal Reserve? Yellen's 3-year term concludes in February 2018, and President Trump has said he will nominate a new Fed in the next few days. The front runners are economist John Taylor and Federal Reserve Governor Jerome Powell. Taylor advocates a rule in which rates which be as high as 3 percent, given current economic conditions. Powell is more closely aligned to Fed Chair Janet Yellen's monetary stance which advocates an incremental increase in rates. With the two candidates representing sharply differing views on interest rate levels, Trump's choice for the new Fed chair could have a significant effect on monetary policy and the strength of the US dollar. If Taylor gets the nod, the US dollar could respond with gains of 3 percent or more.

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