Thu, Oct 06, 2022 @ 11:09 GMT
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Canadian Dollar Trading Sideways as Middle East in Focus

The Canadian dollar is showing limited movement in the Thursday session. Currently, USD/CAD is trading at 1.2593, up 0.10% on the day. In economic news, it’s a quiet day on both sides of the border. US unemployment claims is expected to fall to 231 thousand. In Canada, the New Housing Price Index is forecast to edge up to 0.1%. On Friday, the US releases UoM Consumer Sentiment.

The Canadian dollar has flexed some muscle this week, but the minor currency could face some turbulence, as the markets are braced for a US strike against Syria. This follows an alleged chemical attack by Syrian forces against rebels, and a UN Security Council meeting ended inconclusively after Russia cast a veto on a US proposal to probe the attack. US President Trump has warned that a US response is imminent, while Russia has countered that it will respond to any US move. Matters could get very nasty if Trump makes good on his promise, as investor risk appetite could sink and drag down minor currencies such as the Canadian dollar.

There were no surprises in the Federal Reserve minutes, but the generally hawkish tone has helped support the US dollar. All of the Fed policymakers indicated that the US economy would continue to improve and that inflation would rise in the next few months. At the March meeting, the Fed unanimously voted to raise rates by a quarter-point, bringing the benchmark rate to a range between 1.50% and 1.75%. The Fed projection for rate policy in 2018 remains at three hikes, although there is speculation that the Fed could revise the forecast to four rate hikes. Last week, Fed Chair Jerome Powell said that the Fed would likely continue to raise rates in order to keep a lid on inflation, but added that the rate moves would be gradual. A new headache for the Fed is the escalating trade battle between the US and China, which could hurt the economy and raise consumer prices. As for the next two rate meetings, the markets expect Powell & Co. to sit tight in May and raise rates at the June meeting.

The Bank of Canada Business Outlook Survey was released earlier this week. The survey pointed to a generally upbeat business sector and has helped boost the Canadian dollar. The survey found widespread intention by companies to increase investment and hiring, and “forward-looking sales indicators remain positive across most regions and sectors”. Still, the report is unlikely to change the current sentiment that the BoC will not raise rates at next week’s policy meeting.

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