- MarketPulse - https://www.marketpulse.com -

USD/CAD – Canadian dollar rally continues as U.S-China talks renew optimism, BoC rate hike next?

The Canadian dollar started the week with strong gains, as the impressive rally continues. USD/CAD has now posted losses for four straight days, losing 2.4% in that period. In the Tuesday session, the pair is trading at 1.3293, down 0.04% on the day. It’s a quiet day on the release front. Canada’s trade deficit widened to C$2.1 billion, matching the forecast. In the U.S., JOLTS Job Openings was unexpectedly soft, dropping to 6.83 million. This marked a four-month low. On Wednesday, the Bank of Canada is expected to hike rates and Federal Reserve releases the minutes of its December meeting, when it raised rates.

The U.S. dollar was broadly lower on Monday, as fallout from Fed Chair Powell’s recent remarks continues to weigh on the greenback. Powell engaged in some damage control, seeking to reassure the financial markets that he was listening to market concerns over additional rate hikes. The markets had given Powell a thumbs-down after the Fed’s December rate statement was on the hawkish side, and stocks plummeted. Powell was dovish in his remarks, saying that he was aware of the risks of a slowdown in the U.S. economy and that the Fed would be patient in its policy decisions.

The Bank of Canada will be in the spotlight on Wednesday, with policymakers expected to raise interest rates to an even 2.0%. This would mark the highest interest rates we’ve seen since 2008 and could give the Canadian dollar a small boost. A rate hike would indicate a vote of confidence in the economy by the Bank, and investors will be dissecting the rate statement, looking for clues with regard to monetary policy in 2019.

Risk appetite is higher, as investors are pinning hopes on the outcome of this week’s meeting between U.S and Chinese officials. The teams are holding two days of talks, in an effort to reduce global trade tensions. The ongoing trade war has rocked equity markets, which had their worst year in 2018 since the 2008 financial crisis. The world’s two largest economies have engaged in tit-for-tat tariffs, and President Trump has threatened to impose additional tariffs on March 1 if the sides don’t reach a deal. If this set of talks points to progress, traders can expect risk appetite to improve, which would be bullish for the Canadian dollar.

The Powell “Put” continues to resonate [1]

A bit of the feel-good factor has temporarily abated [2]

USD/CAD Fundamentals

Tuesday (January 8)

Wednesday (January 9)

*All release times are EST

*Key events are in bold

USD/CAD for Tuesday, January 8, 2019

USD/CAD, January 8 at 10:05 EST

Open: 1.3298 High: 1.3303 Low: 1.3268 Close: 1.3294

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.3125 1.3200 1.3290 1.3383 1.3461 1.3552

USD/CAD edged higher in the Asian session and is flat in European trade

Further levels in both directions:

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 [6]

Currency Analyst at Market Pulse [7]
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.