The Canadian dollar has posted slight losses in the Wednesday session. In North American trade, the pair is trading at 1.3068, up 0.26% on the day. Canadian and US banks are closed for a holiday, so traders can expect limited movement from USD/CAD during the day.
The action could pick up on Thursday, as the US releases consumer inflation data for October. The headline figure is projected to slow for a third straight month, from 0.2% to 0.1%. Core CPI is expected to remain pegged at 0.2%, the same pace of increase as in September. According to the forecasts, annual inflation rate will stand at 1.3% for the year ending in November. This is well below the Federal Reserve’s inflation target of around 2 per cent.
With inflation continuing to hover at low levels, the Fed has been able to maintain interest rates close to zero and implement other monetary easing measures without having to worry about inflation moving higher. This has allowed the Fed to forecast that interest rates will remain at ultra-low levels until at least 2023.
Will a Biden win prove bullish for the Canadian dollar?
Although the US presidential election was much closer than predicted by the polls, a win by Joe Biden over Donald Trump led to a massive selloff of US dollars last week, as the Canadian dollar and other currencies recorded sharp gains at the expense of the greenback. USD/CAD fell 1.99% last week and the pair dropped below the symbolic 1.30 level on Monday. This line had been a reliable support level dating back to October 2018.
Many analysts are projecting that the US dollar is headed for further losses against the other G-10 currencies. A Biden administration is expected to take a more restrained stance with regard to international trade, in contrast to the “bull in China shop” approach favored by Donald Trump. The trade war with China was just one example of Trump’s willingness to slap sanctions on US trading partners, whether friend or foe. Earlier this year, Trump briefly imposed levies on Canadian aluminum, despite the free-trade deal between Canada, the US and Mexico. Under Biden, the US will lower the temperature on any trade disputes, and a better trade environment between Canada and the US should benefit the dollar. It also won’t hurt that the personal relationship between Biden and Canadian prime minister Trudeau will almost certainly be better than that between Trudeau and Trump, who had a frosty relationship.
- USD/CAD is testing support at 1.3063. This is followed by support lines at 1.2998 and 1.2959
- There is resistance at 1.3089. Close by, there is resistance at 1.3128
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