USD/CAD – Canadian Dollar Rally Continues, Loonie Breaks Below 1.30

USD/CAD continues to lose ground on Thursday, following the trend seen in the Wednesday session. In the European session, the pair is trading at 1.3025. On the release front, Canada will release Wholesale Sales, with the markets braced for a weak gain of 0.3%. In the US, it’s a busy day, highlighted by the Philly Fed Manufacturing Index and Unemployment Claims.

The Canadian dollar continues to impress this week, surging 350 points against its US counterpart since Tuesday. The loonie gained ground on Wednesday after the US Federal Reserve released a dovish statement and lowered its projection of rate hikes in 2016 from four hikes to just two. The Canadian dollar also was buoyed by a sharp Manufacturing Sales release, with a gain of 2.3%, crushing the estimate of 0.4%. This marked a third straight gain for the manufacturing indicator, raising hopes that the hard-hit manufacturing sector is recovering.

USD/CAD for Thursday, March 17, 2016

USD/CAD March 17 at 8:15 GMT

Open: 1.3118 Low: 1.2942 High: 1.1322 Close: 1.3025

Dovish Fed Clips Sends USD/CAD Downward

As expected, the Federal Reserve stood pat and did not raise interest rates at its policy meeting on Wednesday, maintaining the benchmark rate at 0.25%. The Fed statement noted that the US economy remains vulnerable to an uncertain global economy, but expects to raise rates later in the year due to moderate growth and “strong job gains”. The statement was dovish in tone, a clear departure from the December meeting, when the Fed raised rates for the first time in nine years and talked about four rate hikes over the course of 2016. In just a short three months, global demand has weakened, precipitated by the Chinese slowdown, and US numbers have cooled in comparison to the economy’s torrid pace in the second half of 2015. If inflation and employment numbers push higher in next several months, a rate hike in mid-2016 seems a good bet.

Bank of Canada awaiting Federal Budget for Next Steps

A proactive central bank in 2015 the Bank of Canada (BoC) was almost pushed to cut the record low interest rate in 2016 as the year started with an awful drop in equities around the world. Global demand for resources hit the Canadian economy and reflected on the weak loonie. The BoC opted to hold in January and again in March but has now shifted the responsibility to steer to the economy to the Federal government with the release of the budget in March 22. There is some scepticism about the true effect a fiscal policy will have in a world that has grown addicted to monetary policy even as rates have gone negative.

The Canadian economy could face a turnaround even without a strong fiscal stimulus if the U.S. economy recovery continues and the price of oil keeps rising thanks to the efforts of the OPEC and Russia, but hopefully with some uptick in demand as well. All those factors are subject to market forces the fate of the Canadian economy is too highly dependant on them to succeed, without a strong fiscal policy.

USD/CAD Fundamentals

Thursday (March 17)

  • 8:30 Canadian Wholesale Sales. Estimate 0.3%. Actual 0.0%
  • 8:30 US Philly Fed Manufacturing Index. Estimate -1.4
  • 8:30 US Unemployment Claims. Estimate 267K
  • 8:30 US Current Account. Estimate -117B
  • 10:00 US JOLTS Job Openings. Estimate 5.57M
  • 10:00 US CB Leading Index. Estimate 0.2%
  • 10:30 US Natural Gas Storage. Estimate -9B

*All times DST
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OANDA’s Open Positions Ratio

In the USD/CAD ratio, long positions have a strong majority (70%). This is indicative of the Canadian dollar reversing directions and heading higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.