The Canadian dollar produced another winning week against the greenback, for a seventh consecutive time. In Monday’s European session, USD/CAD is trading at 1.3070, down 0.21% on the day.
US dollar dips as Powell loosens inflation target
The US dollar retreated against its major rivals on Friday, in response to dramatic comments from Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium. Powell announced that the Federal would loosen its inflation target of 2 percent and allow inflation to exceed the target, which has been a long-standing tenet of Fed monetary policy. Under the new approach, the Fed’s target will shift to an “average inflation” of 2%, which means that inflation could exceed the 2% level after a period of weak inflation. The markets interpreted this to mean that the Fed plans to keep interest rates at ultra-low levels for the foreseeable future. The US yield curve steepened to a tw0-month high, and the Canadian dollar jumped on the bandwagon on Friday and posted modest gains. The currency is poised to record an excellent month of August – with only one trading day left, USD/CAD has declined by 2.5 percent.
Canada’s economy continues to recover, after sustaining back-to-back declines in GDP earlier in the year. In June, the economy gained 6.5%, up from 4.5% in May. This beat the estimate of 5.2%, as the GDP releases beat their forecast for a fourth successive month. The strong release is another indication that the recovery is taking hold in Canada, which should be good news for the Canadian dollar.
- 1.3138 is the next resistance line. This is followed by resistance at 1.3178
- 1.3052 is under pressure in support. The next support level is 1.3006, which is protecting the symbolic 1.3000 level
- The pair continues to pull away from the 10-day MA line, after breaking below it last week
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