CAD Lower Ahead of BoC as March Fed Rate Hike Odds Rise

The Canadian dollar weakened on Wednesday to a fresh five-week low against its U.S. counterpart ahead of a Bank of Canada interest rate decision, pressured by increased chances of a Federal Reserve interest rate hike in March.

The U.S. dollar rallied against a basket of major currencies after hawkish comments from two of the Fed’s top officials overshadowed U.S. President Donald Trump’s first major policy speech to Congress. Chances of a Fed rate hike this month rose to 71 percent from 35 percent the day before, according to the CME Group’s FedWatch tool.

In contrast, economists expect the Bank of Canada to leave its policy rate on hold at 0.50 percent on Wednesday and further wait until the second quarter of next year before hiking. In January, the central bank said an interest rate cut was still possible depending on risks, including “material consequences” if Trump enacts protectionist policies.

Trump did not comment on the most pressing tax issue facing Congress, a proposed border adjustment tax to boost exports over imports. The Canadian dollar would be among the biggest losers if the border tax were implemented, analysts say. At 9:18 a.m. ET (1418 GMT), the Canadian dollar was trading at C$1.3334 to the greenback, or 75.00 U.S. cents, weaker than Tuesday’s close of C$1.3281, or 75.30 U.S. cents.

The currency’s strongest level of the session was C$1.3285, while it touched its weakest since Jan. 20 at C$1.3346.

Losses for the commodity-linked Canadian dollar came even as factory data from China and the euro zone added to signs that the global economy is regaining momentum. U.S. crude prices were up 0.48 percent at $54.27 a barrel as investors took heart from strict Organization of the Petroleum Exporting Countries compliance with its pledge to cut output. Oil is one of Canada’s major exports.

via Kitco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza