Will FOMC stay pat and follow the BoC?

The Canadian dollar has kicked off the new trading week with slight gains. Currently, USD/CAD is trading at 1.2748, down 0.22% on the day. The pair ended last week almost unchanged, as the slumping US dollar steadied. Still, the Canadian dollar remains within striking distance of the 1.27 line, which hasn’t been breached since April 2018.

There are no economic events on Monday in Canada or the US, but the pace will pick up with some key events on the calendar this week, including the final FOMC policy meeting of the year. The Federal Reserve is not expected to make any dramatic moves at the meeting, but could reiterate calls for stimulus support from the federal government. The Fed may not have much ammunition left in its arsenal to throw at the economy, with interest rates hovering close to zero and the Fed purchasing some 700 billion dollars in QE in response to the Covid pandemic.

 

BoC gives the nod to stronger CAD

The Bank of Canada held its policy meeting last week, and policymakers did not tinker with current monetary policy. With interest rates at 0.25% and QE at C$100 billion over the next six months, the central bank is clearly prepared to remain in an ultra-accommodative stance for some time to come. Importantly, the bank did not address the sharp appreciation of the Canadian dollar, a signal to the markets that it has no plans to curb the currency’s upswing. The Canadian dollar gained 2.35% against the greenback in November and has padded on another 1.77% so far in December.

With oil prices moving higher and the economy showing signs of recovery, the Canadian dollar should continue to gain ground in early 2021, especially if the US economy improves as well.

 

USD/CAD Technical

  • USD/CAD faces resistance at 1.2830. The next resistance line is at 1.2894
  • There is support at 1.2704, followed by a support line at 1.2642
  • The 10-day MA line remains relevant, slightly above the pair

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.